SDS Capital launches debt fund targeting affordable housing

SDS Capital

Los Angeles-based fund manager SDS Capital is launching an impact debt fund in an effort to broaden its financing platform to better serve its affordable housing developer clients.

The fund, SDSID, expects to finance more than $1 billion in new housing units over the next 18 months through the issuance of taxable and tax-exempt municipal bonds, said Jason Riffe, the fund's managing director.

Prior to its expansion into debt offerings, which will be led by Riffe and his team of four people, SDS' focus had been on providing private equity for affordable housing developers.

With an estimated shortage of 5 to 7 million affordable housing units in the country, SDS founder and chief executive officer Deborah La Franchi said she saw a need to broaden the financing options for their clients.

"We are trying to make financing more affordable and make it so we are a one-stop shop, where we provide equity and debt," La Franchi said. "With interest rates higher, we had to find a way to push the cost of capital down, or they would sit on the sidelines."

Launched in 2001, SDS manages five impact funds with $1.7 billion of assets under management, according to the firm.

SDS says it already has six financings underway in the new fund for 1,427 units of multifamily housing, of which 54% will be affordable to families at 80% of area median income or less. 

SDS Capital

Those deals, which involve unrated debt supporting a single asset, are all expected to close by August, Riffe said. Most are limited private placements, but one of the six might go to the public market, he said.

All six are in California, but his team of four are also looking at deals in Washington, North Carolina and Texas, he said.

Riffe began working with SDS in October or November, but the firm formally launched the fund this week. His will continue as managing partner of his firm Thropo Capital, which he founded in 2024.

He is working with the California Housing Financing Agency and the California Municipal Finance Authority as conduit issuers. Two of the deals are using recycled cap for California private activity bonds, meaning PAB funding that became available when other deals fell off, Riffe said.

It can cost up to $900,000 per unit for Los Angeles to build affordable housing using its own general obligation bond program, but SDS works with developers to keep the cost of financing down, so they can build on average at $300,000 a unit, Riffe said.

"What we are seeing are affordable housing developers who have market sensibilities and can access equity and work with traditional capital stacks, but they are concerned about rising cost of construction and capital," Riffe said.

"By offering a single source of financing with equity options and competitively priced debt, SDS is supplying the two key components of the capital stack and helping to dramatically reduce time and cost to bring an affordable housing project to market," he said.