Leaning off a ladder with paintbrush in hand, sweat dripping from beneath a floppy hat, David Frayne hardly looks the part of a budding real estate mogul.
But as one of the architects of a plan to buy up to 1,000 damaged, decrepit or abandoned single-family homes in the region over the next 18 months, the 39-year-old is well aware that looks can be deceiving.
Since forming Affinity Neighborhoods in May of last year, Frayne and his partners have purchased roughly 35 distressed homes in and around Compton and Long Beach, fixed them up and sold them at market rates. Before the business was incorporated, an informal group of investors led by the three founding Affinity partners had acquired and refurbished about 50 homes, mostly in Oakland.
But Frayne said the group quickly realized that south Los Angeles County -- with its large stock of single-family homes and its shortage of quality, affordable options -- was a better fit for its business model.
"We take housing that's already there and not being used, and we make it better and add it to the mix," said Frayne, vice president of research and development for Affinity. "Our goal is to advance the quality of life in these neighborhoods and get a good return for our investors."
Now the real test begins.
Long Beach-based Affinity aims to raise $100 million to finance its planned buying spree. So far, less than a tenth of that has been committed. But Frayne says he's talking with a number of well-heeled investors who are as intrigued by Affinity's social objectives as they are by its professed ability to achieve returns of up to 30% annually by snapping up properties that nobody else wants.
Most of its homes are still on the market or being fixed up, so it's difficult to gauge Affinity's potential for that type of return. But Frayne insists the group's Oakland investments returned that much and more.
Affinity's niche is a corner of the market where few real estate partnerships have dared to venture, and for good reason.
Home appreciation in the lower-income neighborhoods that make up large swaths of southern L.A. County has generally kept pace with countywide gains in recent years, but lower selling prices mean smaller profit margins for basically the same amount of work. Moreover, relatively high crime rates, struggling schools and other social ills combine to scare off many private investors.
There's also the fact that most real estate professionals are loath to take on the hassles that come with properties that violate local codes, are in obvious disrepair or are in communities where much of the neighboring housing stock is in poor condition.
The scarcity of private capital in low-income neighborhoods means little investment in affordable housing, most of it dependent on such public subsidies as neighborhood block grants from the Department of Housing and Urban Development.
But with the demand for affordable family housing far outstripping the supply, financially strapped governments from the federal level down do not come close to making the investment required to catch up.
"There's a huge demand for quality housing, and that need is as compelling in Los Angeles as it is in any large city in the country," said Scott Syphax, president of Nehemiah Corp. of America, a Sacramento-based nonprofit that is a large provider of down-payment assistance.
"There is an availability of preexisting housing in [large cities], but you don't see a focus on refurbishing it and bringing it back to market."
Locally, at least, nonprofit developers and advocates for affordable housing say there are few if any real estate partnerships operating in lower-income areas in the manner of Affinity.
Unlike such nonprofits as Habitat for Humanity, which uses volunteer labor to build homes that are then sold to poor families with zero-percent mortgages, Affinity doesn't solicit donations or partner with governmental organizations or lenders.
Guided by computer modeling that identifies clusters of below-market properties in areas with pressing housing needs, Affinity has set its sights on about 15 of Los Angeles County's 469 ZIP Codes.
The partnership's bulk buying creates economies of scale from an administrative standpoint and in its relationships with contractors, Frayne said. That enables it to operate more efficiently than an individual buyer might.
And the physical improvements Affinity makes to its properties are having a spillover effect in the neighborhoods where it invests.
On a recent Saturday, about two dozen volunteers joined Frayne and other Affinity employees beneath a hot sun on Peach Street in Compton to plant trees, paint walls and make minor repairs. Affinity was celebrating another refurbished house, but the homes benefiting from the volunteer effort were not owned by Affinity. They belong to about half a dozen neighbors.