Investor FAQ
Answers to common questions from prospective investors.
Investment terms and structure
Understanding the fundamentals
How do you achieve high returns with affordable rents?
Through capital structure and tax efficiency. Our typical 60/30/10 stack (senior debt / subordinated debt / equity) creates 9:1 leverage. Subordinated debt from WSHFC, Amazon HEF, and public agencies provides below-market financing (2-4% vs. 6-8%) with patient, deferrable terms. Combined with tax benefits—100% of depreciation flowing to 10% equity—we deliver 15-18% pre-tax IRRs, rising to 25-30% after-tax in OZ structures.
What is subordinated debt and where does it come from?
Patient capital from mission-aligned sources that sits behind senior debt, typically 25-30% of capitalization. Interest rates of 2-4% with deferred or forgivable structures tied to affordability. Sources include WSHFC, city/county housing departments, Amazon Housing Equity Fund, foundations, and CDFIs. Our SPC status provides access to subordinated capital unavailable to market-rate operators.
How does the Opportunity Zone structure enhance returns?
OZ creates compounding tax benefits: (1) Deferral of capital gains invested until 2026 or exit; (2) With 10% equity, depreciation provides 74% Year 1 tax shelter; (3) Depreciation recapture forgiven at Year 10—basis resets to FMV without tax; (4) All appreciation after Year 10 permanently tax-exempt. Combined with 9:1 leverage, this can turn 16% pre-tax IRRs into 25-30% after-tax returns.
What if subordinated debt isn't available for a deal?
We create value through Section 8 rental assistance (stable contracted revenue), property tax exemptions (5-15% NOI improvement), distressed acquisitions (below replacement cost), and operational efficiency (vertical integration delivers 200-400 bps savings). Each deal optimizes risk-adjusted returns using available tools. The common thread is operational excellence and mission alignment.
What is your typical leverage ratio?
60% senior debt, 30% subordinated debt, 10% equity—creating 9:1 equity leverage. Lower-risk than traditional high leverage because: senior LTV is conservative at 60-65%; sub debt is patient capital with deferrable payments and 30-99 year commitments; mission-aligned lenders optimize for housing outcomes, not maximum returns. For deals without sub debt, we use conservative 55-65% senior LTV.
How do you handle rent control and tenant protection laws?
Our properties already operate below market rents (60-80% AMI), providing natural insulation. We maintain strong housing authority relationships and comply proactively with regulations. Section 8 properties have stable, contracted revenue regardless of rent control.
What happens if a property underperforms?
Early, direct communication with investors. Our vertically integrated platform enables rapid response—additional management resources, accelerated capital improvements, operational adjustments. We maintain contingency reserves and conservative underwriting to absorb short-term headwinds.
How are you different from a REIT?
Social Purpose Corporation with legally binding commitments to financial returns and social impact. Exclusive focus on affordable/workforce housing (60-80% AMI). Vertically integrated platform provides 200-400 bps cost advantages. Longer hold periods (5-10 years) and access to tax-advantaged structures (OZ, LIHTC, PABs) that enhance after-tax returns.
What are the minimum investment amounts?
Preservation Funds: $100,000. Development (OZ): $250,000. Institutional: $5,000,000 with custom terms. All investments limited to accredited investors and qualified purchasers.
What is the typical investment hold period?
Preservation Funds: 5-7 years. Development (OZ): 10 years to maximize tax benefits. Single-asset opportunities: 7-10 years. Hold periods balance investor returns, tax efficiency, and affordability mission.
How often do you distribute cash to investors?
Preservation Funds: quarterly after stabilization. Development: upon stabilization or refinancing. Distribution frequency and amounts detailed in offering documents.
What tax advantages do your investments offer?
OZ: capital gains deferral, basis step-up, tax-free appreciation after 10 years. All properties: depreciation deductions sheltering distributions. Some deals: LIHTC tax credits, recycled PABs, tax-exempt financing. Consult your tax advisor.
Strategy and differentiation
Why this approach, why this market
Why focus exclusively on affordable housing?
Structurally underserved by institutional capital despite strong fundamentals. Regulatory tailwinds (OZ, LIHTC, mission-aligned financing), recession resilience, preferential financing from Freddie Mac/WSHFC/Amazon HEF, and competitive advantage through SPC status and deep expertise.
Why the Pacific Northwest?
250,000 affordable units needed by 2030. Job growth outpacing housing supply 3:1. Strong economic fundamentals, diverse employment bases, and progressive housing policies. Regional focus enables operational excellence through local expertise, public sector relationships, and efficient management across concentrated footprint.
What is a Social Purpose Corporation (SPC)?
Washington State legal structure codifying dual commitments to profit and social mission. Unlike traditional corporations or B-Corps, SPCs have legally enforceable obligations. Provides investor confidence that mission is durable, access to mission-aligned capital, and regulatory alignment.
How does vertical integration create value?
Platform integrates investment, development, construction, and property management. Delivers 200-400 bps cost savings, risk mitigation through real-time visibility, quality control across lifecycle, and competitive intelligence from managing 1,250+ units.
Operations and execution
How we deliver results
How do you source deals?
Multiple channels: nonprofit relationships, off-market opportunities through property management, public agency partnerships, affordable housing brokers, and distressed situations. Mission-aligned reputation provides access to opportunities unavailable to purely financial buyers.
What is your track record on construction projects?
Cornus House: $2M under budget, ahead of schedule. Betula House: on time/budget, 100% occupancy in 4 months. Crossroads Garden: pioneered first recycled PAB in Washington. Multiple rehabilitations completed on time. In-house team provides consistency third-party GCs cannot match.
How do you manage properties differently?
Arboreal Management operates at institutional standards with mission focus. Specialized compliance expertise (LIHTC, Section 8), resident-centered approach, proprietary technology platform, experienced regional managers, and rapid response through integrated construction. Stabilizes distressed properties while maintaining affordability.
What investor reporting do you provide?
Quarterly: property financials, occupancy data, capital improvements, market updates, portfolio metrics. Annual: audited financials, K-1s, strategic updates. Direct leadership access. Proactive communication when conditions change.
Risk factors and mitigation
Key risks and how we address them
How do you manage interest rate risk?
Conservative 65-70% LTV, fixed-rate financing wherever possible, and focus on cash-flowing properties that can absorb rate volatility. Preservation and operating properties provide downside protection through stable, contracted revenue streams.
What about construction cost and timeline risk?
In-house construction management provides real-time cost control. Track record includes Cornus House ($2M under budget, ahead of schedule) and multiple rehabilitations completed on time. Contingency reserves and guaranteed maximum price contracts where appropriate.
How do you mitigate lease-up and absorption risk?
Vertically integrated property management (Arboreal) begins marketing before completion. Recent success includes Cornus House (only successful Tacoma lease-up in 2024-2025) and Betula House (100% occupancy in 4 months). Affordable rents (60-80% AMI) provide competitive advantage in tight markets.
What about regulatory and political risk?
SPC mission alignment and affordability commitments position us favorably with regulators. Many properties have Section 8 contracts or regulatory agreements providing stable, contracted revenue. Active engagement with housing authorities and strong public sector relationships.
How do you address geographic concentration risk?
Focus on markets with diverse economic bases (Seattle: tech, healthcare, education; Tacoma: port, logistics; Portland: manufacturing, services). Affordable housing demonstrates greater recession resilience than market-rate. Preservation funds diversify across multiple properties to reduce single-asset exposure.
This is not an exhaustive list of risks. All real estate investments involve risk of loss. Investors should carefully review offering documents and consult with their advisors.
Still have questions?
We're happy to discuss your specific situation and investment goals.