Workforce Housing Sector Faces Capital Crisis Despite Strong Fundamentals, Creating Opportunities for Specialized Operators

The workforce housing sector is experiencing a capital availability crisis despite maintaining sound demographic fundamentals, creating opportunities for operators with institutional systems and repositioning expertise. OneWall Communities, which manages over 5,000 workforce housing units across the Northeast and expanding Southern markets, is positioned to capitalize on distressed situations where operators lack access to recapitalization sources or exit liquidity. The Northeast has really sound demographics and fundamentals for investing in workforce housing, explains Ron Kutas, founder of OneWall Communities. That has not changed even though liquidity in the marketplace has. There are a lot of operators, owners, managers who do not have access to capital and therefore either have to sell or recapitalize their deals.

The capital constraint reflects broader market conditions rather than asset class performance. Workforce housing, defined as Class B properties serving what Kutas terms the new middle class of America, demonstrated resilience through the post-2008 investment thesis: families trade up from Class C housing during economic expansion and trade down from luxury during contraction. However, the sector carries operational complexity that burned inexperienced operators during the recent real estate appreciation cycle, leading to institutional capital pullback while underwriting standards adjust. OneWall's background as vertically integrated owner-operators directly informs its third-party management approach, enabling the firm to deliver alignment that traditional fee-based property management companies struggle to achieve.

When property management and asset management are completely aligned, you have a much greater chance in succeeding, Kutas explains. Property management firms that don't have in-house asset management that are not necessarily integrated into the underwriting and the business plan from the onset are motivated by different factors at the property level. This owner-operator perspective allows OneWall to serve third-party clients differently than traditional management firms. Rather than optimizing solely for revenue metrics like leasing velocity and rent maximization, OneWall applies lessons learned from managing its own portfolio to understand ownership objectives around expense management, capital expenditure timing, and value-add execution.

Because of our experience as owner-operators, we understand how to look at the investment holistically, Kutas notes. We can advise on what types of expenses are necessary at the property or are not necessary at the property – that has been a very quick value add that we've brought in when taking over assets from other management companies. The Northeast regulatory landscape emerged as OneWall's most significant challenge in 2024, prompting fundamental changes to due diligence processes. The regulatory environment for us was something that I don't think earlier in our business career we put as much attention behind, Kutas explains. We invested in a county that out of nowhere changed the regulatory environment and basically froze all deal activity for multifamily. We've had to really change our exit strategy for those assets.

The experience shifted due diligence beyond current regulatory assessment to include political landscape analysis: identifying emerging politicians and understanding their positions on landlord-tenant policy. We're very keen on doing a lot of diligence on where not only where is the current government at from a landlord tenant standpoint, but who are the dynamic new up and coming politicians and what is their vision for the marketplace, Kutas says. This regulatory unpredictability represents the sector's primary threat over the next three to five years, complicating underwriting assumptions when policy direction remains unclear. When assuming management of properties previously operated by third-party firms, OneWall consistently identifies expense optimization as an immediate value creation opportunity.

We've seen property management companies that really don't view the expense side as something that they need to really hone in on, Kutas explains. Aligning ourselves with asset management and ownership in terms of what the actual business plan is so we can advise on what types of expenses are necessary at the property or are not necessary has been a very quick value add. The owner-operator experience informs expense evaluation in ways fee-based managers without ownership history cannot replicate, according to Kutas.