The Rise of the Impact Investor

As multifamily developers continue to face rising interest rates and intense competition for tax credits and bonds, a growing share of investment is coming from a different source — social-impact or “impact-driven” investors. Today, these investors are increasingly targeting affordable multifamily projects, drawn not only by the assets’ substantial social benefits, but also the predictable and solid economics of investing in them.

Traditionally, impact investors look beyond short-term economic gains and toward longer term benefits, all while still aiming to generate dependable financial return. .

These investors tend to think like the “tortoise” in the classic fable — long-haul, steady, and patient, says Bob Simpson, president of the Multifamily Impact Council (MIC). Rather than chasing short-term cap rate compression — when property value outpaces Net Operating Income (NOI), allowing quick and profitable asset flipping — impact investors favor what developers call “core-plus” or stabilized assets. “Impact-motivated investors are typically longer- term. They’re looking for lower risk, stable, predictable cash flows and valuations that increase over time,” Simpson explains.

This approach allows investors to not only do good in the world, but to also bet on fundamentally different financial dynamics that often favor affordable housing over traditional Class A market-rate deals.

In general, impact investors take two approaches: concessionary impact strategies — which prioritize mission over returns and allow for certain economic “concessions” in return for pre-determined social benefits — and non-concessionary strategies, in which investors favor strong, predictable returns.

Some firms view the non-concessionary approach as one that can make the industry more resilient long-term. “Some groups are emotionally driven and willing to make concessionary investments,” says Jon Needell, president and CIO of Kairos Investment Management Company says. “Someone like us is non-concessionary. We do it because we think it makes the returns better — and certainly no worse — than market-rate returns.”

Today, these investors are increasingly targeting affordable multifamily properties, given the inherent longer-term horizon and lower tolerance for volatility that affordable housing offers as an asset class, and the sector’s overall predictability in occupancy, rent collections, and operating expenses.

That evolution is clear to long-time practitioners like Needell, who notes that even before the terminology was standardized, the underlying benefits of investing in affordable housing were already becoming evident. “When we started doing it, the word ‘impact’ was emerging,” he recalls. “I had an investor call me 15 years ago and ask if we did impact. I had to ask them what they meant. When they explained it, I said, ‘Oh yeah, we already do that.’”

A Proven Strategy
Impact investors often look for two interconnected outcomes: social value (affordability, resident stability, community benefits) and financial resilience (steady rent collection, controlled expenses, low vacancy). In many cases, these outcomes reinforce each other.

For example, ensuring a stable tenant base — via rental affordability, robust resident services, etc. — leads to predictable rents and more stable cash flow, solving one of the core challenge in multifamily investing.

Thus, it is a project’s affordability itself that can create operational strength. “The bigger the discount between market rent and regulated rent, the better the property will operate with regard to occupancy and credit collections,” Needell notes.

In Needell’s experience, well-run Low Income Housing Tax Credit (LIHTC) properties often perform at or near Class A levels in terms of credit loss. “If you told an investor there’s a brand-new Class A property and a LIHTC property and both are operating at 0.5 percent credit loss, they’d look at you like you’re nuts — but that’s often the case.”

Programs that strengthen tenant financial footing further amplify this effect. For example, Needell highlights federal free-lunch reimbursements available to qualifying children at LIHTC properties. “It may not come to me as an owner, but it gives the tenant more financial security to pay their rent.” Higher renewal rates follow, lowering turnover costs and stabilizing income.

Another area where impact investments shine is energy and water efficiency. Aging multifamily buildings often carry hidden cost risks tied to volatile utility prices. Indeed, research has consistently found a strong correlation between higher energy expenditures and increased mortgage default probability.

Energy-efficiency improvements can matter even more in LIHTC operations, says Needell. Typically, reimbursement of utilities is available on LIHTC properties, putting the burden of cost on owners rather than tenants, and thus affecting investment returns. “Any improvement I make — low-flow toilets, aerators, leak sensors — the savings go to the investor’s bottom line,” he says. “That’s not available to market rate.”

Over a five to seven year horizon, these savings compound into more reliable NOI and reduced exposure to price fluctuations, aligning directly with impact investors’ long-term objectives.

A Common Framework Brings Predictability
A major obstacle to scaling impact investing has been the lack of standard definitions and metrics. MIC’s open-source Multifamily Impact Framework has emerged as a widely adopted solution. At its most basic, the framework suggests seven principles that impact-oriented multifamily investors should follow: affordability, adequate resident engagement/services, meaningful housing stability, economic health and mobility for tenants, physical health and wellness for tenants, resilient/climate-friendly building practices, and good business strategies.

Needell says the framework accelerated adoption because the industry was waiting for a common benchmark. “My original opinion was I wanted to be the last to adopt a standard — what if I adopted the wrong one and invested a bunch of money in it?” he recalls. “But Bob came to me with enough of a group of cohorts and his stature in the industry that helped coalesce MIC as the standard for affordable housing in the U.S.”

He also notes that the consistency helps investors navigate a wide spectrum of practices marketed as “impact.” “There are people doing market-rate under the guise of impact,” he says. “A common reporting standard is helpful, because investors can understand whether a deal is achieving the impact they’re looking for along with the return threshold.”

Large firms such as Jonathan Rose Companies, Nuveen, Bridge Investment Group, and Vistria Group, as well as nonprofit developers like Enterprise Community Partners now align their reporting with the framework.

Further Attracting Institutional Capital
To increase institutional capital flows, MIC is investing in research, including a joint study with NYU’s Stern School of Business on how economic occupancy and turnover patterns relate to long-term operating risk.

This study will only deepen an institutional understanding of LIHTC that has increased impact-motivated investor appetite in recent years. “It wasn’t really until 2016 that this was an investable institutional segment,” Needell explains. “LIHTC properties didn’t start selling in meaningful numbers until around 2001, and it took another 15 years for enough large-scale properties to exist for institutional interest.”

As evidence accumulates that affordable housing delivers stable, durable performance, both Simpson and Needell expect institutional allocations to rise.

How Can Developers Attract Impact Capital?
For developers hoping to attract impact capital, Simpson says there are three essential questions to answer:

• How does this investment improve the life of the renter?
• How does it strengthen the community?
• How does it generate reliable returns?

Needell frames the same idea through an operator’s lens: affordability, environmental improvements, and social programs all link directly to risk-adjusted financial performance. “Environmental improvements are distinctly different in LIHTC than market rate,” he says. “And social programs really work toward helping tenants, which, in turn, improve operations.”

The two perspectives converge. Impact investors evaluate “impact” not as mission in opposition to finance, but as a means of reducing volatility and enhancing performance.

Simpson and Needell offer overlapping recommendations for practical steps that developers can take to appear most attractive to impact-driven investment entities:

• Embed impact metrics early. Developers should integrate MIC’s framework into project design from the outset.
• Quantify outcomes. Energy audits, water-use projections, and resident financial-stability metrics provide credibility.
• Present long-term strategies. Impact investors expect stable, multi-year operating plans.
• Highlight risk mitigation. Needell emphasizes renewal rates, credit loss, energy savings, and programmatic supports as the types of operational detail impact investors value.

By doing so, developers signal alignment with the underwriting frameworks used by major impact capital allocators.

With rising interest rates, elevated construction costs, and a persistent shortage of affordable housing, capital that takes a long-term view is increasingly valuable. Needell underscores the structural importance of the LIHTC program in expanding nationwide housing supply. “It’s essential and a great program. We are undersupplied by affordable housing by a lot, and it’s really hard to build affordable at a price that makes sense without tax credits.”

Impact investors, both concessionary and non-concessionary, are filling critical financing gaps — and, as Needell suggests, doing so because the strategy is financially sound, not just socially beneficial.