America First Multifamily Investors, L.P. (ATAX) is a unique partnership that invests in multi-family real estate. Apartments are a fantastic investment in an inflationary environment benefiting from the tendency for real estate to go up in price and from rising rents, notes Rida Morwa, editor of High Dividend Opportunities.
Since residential leases are typically 1-year, rents are reset very frequently, allowing the landlord to more quickly pass along rent increases compared to commercial properties where rent is reset every 3-5 years.
ATAX has two main approaches to this sector. It buys "MRBs" and invests in developing new apartments that they call "Vantage" properties. Let's look at each of these segments.
What Are MRBs?
MRBs (mortgage revenue bonds) are loans that state housing agencies originate from. These loans are designed to encourage developers to build low-income housing, and a portion of the properties that secure these loans are low-income.
The housing agency underwrites and originates the loan and then sells it to investors. As an extra carrot, investors do not have to pay taxes on the interest received from these loans!
These bonds are first-lien, secured by the apartment buildings. This means that ATAX has the option to foreclose on the property if it defaults. This is something that ATAX had to do back in 2010, and it was very efficient at recovering its capital and experienced a full recovery.
ATAX has the infrastructure, knowledge, and ability to operate properties until it can sell them. COVID has proven to be a very different black swan, and none of ATAX's multi-family MRBs have defaulted. So ATAX will not have to use their skills to deal with foreclosures now, but it is great to know they can.
With property values rising, excess liquidity in the financial system, and defaults almost non-existent, MRBs are a fantastic option to find yield. The tax-free status of the interest is a cherry on top and one that ATAX passes along to you through the partnership structure. The portion of your dividends related to MRBs will be tax-exempt.
What Are Vantage Properties?
ATAX's "Vantage" properties are part of a joint venture with a developer. ATAX provides the capital, and the developer builds new apartment buildings. The apartments are held for 1-2 years while they "lease up" and then are sold as fully leased apartments for a profit. So the entire cycle takes about 3-4 years.
ATAX held back on selling properties in 2020, preferring to hold some fully developed properties and collect rent instead of selling into a weak real estate market. Today, the real estate market is thriving, and ATAX has resumed selling properties.
As we go into 2022, we can expect that the real estate market will remain very strong, and ATAX will continue fetching great prices on new buildings as investors turn to apartments to shield themselves from inflation.
In Q3, ATAX had a huge quarter with CAD (cash available for distribution) of $0.22/unit — more than doubling their distribution. Year-to-date, ATAX has CAD of $0.50, covering its $0.31 in distributions by over 160%. Historically, ATAX has sought to payout 100% of CAD, so we could be looking at another dividend raise or a special dividend in December.
ATAX is an expanding company in a very hot sector that will benefit from inflation. What more do you want? Well, how about having 40-60% of your dividend tax-exempt? That is a nice cherry on top for this hidden gem! Note: ATAX is a partnership and issues a K-1 at tax time.
