Breaking Ground
Daryl Carter, Founder, Chairman and CEO of Avanath Capital Management
By Darryl Hicks
10 min read
Daryl Carter grew up in Detroit, the son of a factory worker and a maid who fled the South after World War II to seek a better life. They instilled a strong work ethic in their son and encouraged him to pursue the best possible education.
Carter did just that, earning a bachelor’s degree in architecture from the University of Michigan and two master’s degrees from MIT, one in business and the other in architecture. From these humble beginnings, Carter embarked on a professional career that has lasted 40 years and brought investment capital and prosperity back to America’s neglected urban neighborhoods.
The company he founded in 2008, Avanath (pronounced ah-van-ith) Capital Management, ranks among the largest minority-owned investors of affordable housing with a portfolio valued at $2.5 billion comprising 11,000 units in 13 states.
Tax Credit Advisor sat down with Carter to learn more about his work ethic, what life lessons he has learned over his 40-year career, and how the past year has impacted his approach to rebuilding communities.
Tax Credit Advisor: Daryl, how did your upbringing influence your career path?
Daryl Carter: I grew up on the west side of Detroit. My family was typical of many African American families in the 60s and 70s in that my parents were both from Mississippi and they came north to get jobs in the auto industry post-World War II. My dad worked in the factory and my mom was a maid, so very much a working-class upbringing. I witnessed the decline of Detroit in the 70s and 80s, the lack of investment in neighborhoods, the deterioration. Detroit, like many cities, was segregated. Neighborhoods were self-contained with African American-owned businesses and doctors and everything. That lack of investment of institutional capital in communities of color has motivated me for the past 40 years. My parents were hard working and they valued education. My parents’ biggest influence was having a strong work ethic. Hard work is far more important than being smart.
TCA: How does someone with your educational background end up becoming a hugely successful investor of affordable housing?
DC: Affordable housing is not just about finance it’s about selling a certain lifestyle and creating excitement throughout a community. I have an MBA, but I understand a fair amount about construction and I have a good eye for design. Our business model focuses on acquisition and rehabilitation. Whether an asset is affordable or not, when people walk into a management office I want them to feel excited. We acquired several properties with incredible pools, but you couldn’t see them from the office because they were obscured by these huge blinds. We had them removed and opened things up visually so that we could promote this important amenity. At one of our seniors properties, the exercise facility was completely inadequate. We found the perfect location and built a new one at the front entrance. Often, the children accompany their parents to check out a new place. When they walked into this property and saw people working out they were like, ‘Wow, mom and dad, you should live here.’
TCA: What types of properties do you find most appealing? I saw you recently expanded into the Boston market. Are there other sections of the country you’re looking at in 2021?
DC: We buy tax credit properties, project-based Section 8 and naturally occurring affordable. An example of the latter was a $40 million deal we recently closed in Boston. We negotiated with the local housing authority to keep rents affordable in exchange for a $4 million grant. The city was happy because they spent a lot less money than had they re-syndicated the tax credits. We cultivate relationships with our housing authority partners and brainstorm ideas that potentially work. We’re in about 20 metropolitan statistical areas (MSAs), including Denver, Seattle, Sacramento, Austin, Chicago, Detroit, New York and Washington, DC. We have one asset in Raleigh-Durham, NC, so we may expand there. The next big market for us could be Atlanta. We like the markets that we’re in now, so the priority now is to build more scale in these areas. Some people have said that because of COVID people are going to move away from the cities. I don’t see that being a long-term trend. We have some small assets in downtown Detroit that have performed extremely well.
TCA: There’s a growing concern that millions of renters could soon be facing eviction if the Centers for Disease Control and Prevention’s eviction moratorium expires on December 31 and no additional relief is provided. How are you addressing this challenge within your own portfolio?
DC: I believe that issue is overblown. Looking at our portfolio, which is a pretty decent sample size, in 2019 our delinquencies were about 35 basis points. I am not saying it’s not an issue, but to provide some context, that equated to 75 evictions out of 11,000 apartments. Sixty of those evictions were for egregious violations, drug dealing or some other criminal activity, while 15 were for non-payment of rent. This year, our delinquency rate is around 150 basis points, or 1.5 percent. When we filed late notices people immediately paid. We’ve done about 60 lease modifications and made it very clear to our residents that if they can’t pay, we’re happy to work with them. Most large owners are looking at it the same way. We don’t want to see people on the streets, so I don’t think this wave is coming.
TCA: In July 2020, you announced an action plan to address inequality. How did this plan come about and what impact has it had thus far?
DC: After what happened to George Floyd, I could not watch TV, I could not sleep, and I found myself becoming angrier and angrier. I felt there was a need, as probably the largest African American apartment owner who serves communities of color and is a former president of the National Multifamily Housing Council, to speak out. I appealed to my colleagues in the apartment industry and said, ’Hey, this is our customer base, we need to be doing something. We have skin in the game.’ I wrote a letter to my employees and shared a copy with my good friends in the National Multifamily Housing Council in which I talked about my own experiences of being stopped by the police. I was shocked by the response. My maintenance techs, who are mostly African American and Latino, wrote back and said, ‘Daryl, we didn’t think that could happen to you.’ I said, ‘Well, that’s the point, it can happen to anyone, even the CEO and owner of a company.’ What surprised me even more were the phone calls I received from long-time friends, CEOs of major companies, who were in tears saying the same thing, We need to focus on getting more diversity on corporate boards and in leadership positions. There are a lot of good people in the apartment industry who have embraced these ideas, but we can do more.
TCA: Tell our readers more about Avanath. For example, what are you most proud of as a company and what sets you apart from other companies that own and operate affordable and workforce housing?
DC: We have a diverse leadership that reflects the communities we serve, so I am proud of that. We have taken a number of communities that were not safe or well-maintained and made them places where people before they were transformed had to live and now are places where people want to live. I like to tell our investors that we invest not only in brick and mortar but holistically in the community. That generates the best bottom line for us. Many communities that have been underserved by quality housing have been underserved by retail, healthcare, a variety of different things. In places where there is not a lot of retail, we have partnered on multiple occasions with Amazon Lockers. Very often people rely on check cashing and things like that because there aren’t any mainstream banks close by. People assume that because they have a criminal record, they can’t open a bank account. Well, no. The only thing that matters is the bank establishing your identity. We also have residents who pay with a third-party check or use a check-cashing service that charges eight cents on the dollar, which is a meaningful amount of money. We’ll direct them to one of the banks that we have a relationship with so they can be better served. Financial literacy is something as a company we try to bring many of our residents.
TCA: What life lessons have you learned over your 40-year career that have contributed to your success?
DC: Probably the first and foremost thing, which is very counterintuitive for someone young and ambitious like I was when I was 20 or 30, is that patience really does matter. Sometimes you have to think outside the box. I know that’s kind of a cliché. Solutions to many of our challenges, whether it’s affordable housing or racial equality, don’t have quick fixes. We’ve got to take these things one day at a time. Let’s take racial diversity. Most property managers are diverse, just not in the corporate suite. We’ve been active in trying to enhance the education of our staff, including our maintenance techs, and providing opportunities for people to move into other areas, like acquisitions or asset management. As an industry, we can do more and we should be willing to look at the way things have traditionally been done, admit they don’t work, and try new approaches. Sometimes the biggest challenge is having the guts to try new things and, if they don’t work, so be it. That’s what is so great about Microsoft. They come up with new software that’s not perfect, but they don’t try to get it perfect. They innovate and come up with version 2.0 and then version 3.0. This year, we’ve leased 3,000 units virtually. That’s something we’ve pushed housing authorities to adopt for five years. Now with their current situation they’ve allowed us to do it and it has worked out well.
TCA: Where do you see yourself and your company in the next five years?
DC: We’ve more than doubled in size the last five years. Five years from now, I’d like to increase our portfolio from 11,000 apartment units to 30,000. I’d like to stay primarily in the markets that we serve today, but maybe we’ll expand into one or two new markets, maybe Atlanta or Houston. I want to continue to build quality and leadership in our company. We’ve been very fortunate to be able to raise lots of capital, because we’ve generated strong investment returns. I want to continue to grow, and I believe there’s a lot of work to be done, particularly in communities of color. If we can get people to focus on African American and Latino communities where there’s really, really strong needs for quality housing, I think we can have an impact. And that’s a game changer in this country.
