In 2017, Martin Muoto got a call from his real estate agent about a four-unit building for sale on Budlong Avenue, in the heart of the South Central district of Los Angeles. The deal had “some hair on it,” the broker noted. The property was controlled by the 57 Neighborhood Crips gang, which was using it as a narcotics bazaar, according to a civil complaint filed against the owner in state court by the Office of the Los Angeles City Attorney. The dealers stashed the drugs inside the garage and met their customers in an outdoor stairwell, where they sold rock cocaine, smoked marijuana and drank alcohol, and played loud music day and night, the city alleged.
Muoto, who’d been scouring the area for properties for his development company, SoLa Impact LLC, bought the building anyway, for $440,000. SoLa specializes in challenging situations. After closing the deal, he did what he’s done since growing up in strife-torn northern Nigeria: “I deescalated.” He got to know the neighborhood gang leader and made his pitch, saying SoLa Impact wanted to improve the neighborhood not for affluent White outsiders—he wasn’t trying to gentrify South Central—but for the families of color in South LA who’ve been ignored by banks and other businesses for generations. About 95% of SoLa Impact’s tenants are Black and Brown. Muoto calls his development approach “same neighbors, better neighborhoods.” The drug dealers backed off.
“The people in South LA are undervalued, and so is the property,” Muoto says. “If we don’t invest in these communities, who will? That’s the big question not just for LA, but for American capitalism.”
With rents and property values soaring in recent years and more than 40,000 homeless people at last count (right before the pandemic), LA faces a housing emergency. Builders are producing less than 30% of the 57,000 new housing units the city says it needs annually to keep up with demand. Construction is obscenely expensive, especially to build heavily politicized shelter for the poor. The average cost to build a single unit of affordable housing under the city’s $1.2 billion municipal bond program hit almost $600,000 in 2021, City Controller Ron Galperin reported in February. Costs “continue to climb to staggering heights,” he wrote.
Muoto, a relentless cost-cutter and an avowed skeptic of the government-nonprofit nexus that dominates the affordable housing industry, is building low-income housing for about $250,000 per unit, using only private money. Most affordable housing projects rely on government subsidies that are channeled through politicians and public agencies to small groups of nonprofits, developers, and contractors. Controlling costs isn’t the priority. SoLa Impact’s business model, by contrast, requires it to build cheaply enough that it can turn a profit on rental revenue roughly in line with what the US Department of Housing and Urban Development pays in its monthly Section 8 housing vouchers. In Los Angeles, that’s about $1,650 for a one-bedroom apartment and $2,000 for two bedrooms. The investment funds Muoto has created for SoLa’s projects have earned return rates in the mid-teens, according to documents the company has shown investors.
SoLa Impact’s discipline is proving critical today, as builders are buffeted by rising interest rates and the cost of materials. By taking measures such as stockpiling lumber during price dips, standardizing everything possible—window sizes, ceiling heights, countertops, structural beams—in all new construction, and finding new sources for steel, SoLa Impact has kept cost increases to no more than 18% since the start of the pandemic. That’s compared with a 31% increase nationally since January 2020, according to the US Bureau of Labor Statistics. Muoto is also finding he’s been able to offset rising loan costs with falling property costs in a weaker property market. “We don’t have to outrun the bear. We just have to outrun everybody else,” he says.
Muoto is now closing SoLa’s fourth affordable housing fund, the $300 million Black Impact Fund, anchored by $25 million from PayPal Holdings Inc. and $50 million from the California State Teachers’ Retirement System, or CalSTRS, the nation’s second-largest public pension fund. The company’s portfolio of about 1,500 recently renovated apartments, along with 4,500 new housing units in various stages of development, makes Muoto one of the largest affordable housing landlords in Southern California.
Muoto doesn’t miss a chance to say it’s all possible because the money is from private sources. “The nonprofit industrial complex isn’t getting it done,” he says over lunch at the Beehive, SoLa Impact’s headquarters campus in South Central, a complex of gardens and brick warehouses remodeled into offices, commercial space, a yoga studio, a microbrewery, and a tech center for young people. “The government isn’t getting it done, either. So we’re reaching out to all our friends and saying, ‘Look, this is what we’re doing. Feel free to criticize, feel free to improve. But we’ve got to get it done or no one will.’ ”
On some days, the 57 Neighborhood Crips boss was supportive of Muoto’s ambition to improve the neighborhood; on others, Muoto says, he railed that rehabbing housing was hurting business. On one particularly bad night, when SoLa Impact was almost finished renovating the Budlong Avenue property at a cost of about $217,000, someone shot out all the new windows. Several weeks later, Muoto escalated his deescalation tactics. He invited the deputy city attorney who’d sued the building’s previous owner to tour SoLa Impact’s renovations, with one request: that she show up clearly identified as a city prosecutor. She arrived with the City Attorney logo on the side of her Prius and the back of her windbreaker.
“We were sort of chumming it up, purposely, and I could see everyone in the neighborhood watching us,” Muoto says. “I am fully aware that could have backfired, but it didn’t.”
One of the new tenants in the refurbished building, Myeshia Hawthorne, had been homeless. She moved into a three-bedroom unit with two daughters and an infant granddaughter, for $1,950 a month. The kitchen and bathroom were brand-new. It was, Hawthorne says, “the first time I can honestly say that I lived anywhere that was clean and all fixed up.”
Gang activity in the neighborhood appeared to decline after SoLa renovated two more buildings nearby, Hawthorne says. Her sleep and diet improved in the safety and comfort of her own home, helping her control her diabetes and hypertension. Her eldest daughter got married and moved out with the baby. Her youngest now works as a beautician. Hawthorne works nights at a drug rehab facility. Per the terms of the Section 8 program, the family’s rent has risen by only $12 a month over the past four years.
Affordability is relative, of course. Hawthorne’s apartment previously rented for $1,375. In the 168 buildings it bought with its first two funds, SoLa Impact inherited hundreds of rent-controlled tenants, many paying less than $1,000 a month. As the company renovated the properties and converted them to Section 8 status, it raised the rents. Some tenants moved out and, as the Los Angeles Times reported in June, others filed five lawsuits accusing SoLa Impact of failing to address pest infestations and fix problems such as leaks and mold. Many of the buildings’ tenants have worked with a local advocacy group called Strategic Actions for a Just Economy, or SAJE, which says SoLa Impact has worked to dislodge rent-controlled tenants in favor of higher-paying Section 8 voucher recipients.
“We treat them like any other corporate landlord,” says SAJE’s Favian Gonzalez, who met with Muoto last year to discuss the issues. “I shouldn’t be spending my time organizing against SoLa Impact—there are worse landlords. But it really makes me angry when they go around saying they’re not displacing community residents. Maybe they’re not gentrifying, but they are displacing.”
Muoto acknowledges SoLa’s older buildings were in dire need of repairs, an issue he says he’s worked hard to address. He also says that SoLa induced fewer than 2% of its inherited tenants to move out and that the company abides by LA’s rent control laws. Even so, the costs and hassles of renovating older buildings and satisfying existing tenants led SoLa in 2019 to start focusing almost entirely on new construction.
The son of a Polish mother and Nigerian father, Muoto arrived in Philadelphia in 1989 to attend the Wharton School of the University of Pennsylvania on a full scholarship. He had $450 and a return ticket to Nigeria to his name. After graduating and working three years as a computer industry analyst, he spent the next 16 years doing corporate turnarounds for private equity firms General Atlantic and Accretive LLC, among others.
Muoto began investing in South LA on his own, after moving to the city in 2004 to turn around a direct response fulfillment company. He founded SoLa Impact in 2012. His initial investor pitch for a South LA housing fund didn’t go well. “I went to all the biggest endowments and foundations that talk about diversity and ending systemic racism, and 90% of them said this sounds too risky,” he says. As Muoto established a track record of delivering affordable units at relatively low cost, he attracted family office investors. Eventually the results spoke for themselves. The profit motive was crucial, Muoto argues, for checking inefficiencies in an industry composed largely of publicly subsidized nonprofits. He likens the cozy relationships to the defense industry and its proverbial $900 hammers. “We’ve sent out projects to bid, and people say, ‘Oh, it’s affordable?’ and jack up the price 25%,” he says.
The extra costs are a big reason many cities face a chronic shortfall of affordable dwellings. In a 2020 study, Carolina Reid of the University of California at Berkeley estimated that construction costs for affordable housing in California rose 30% from 2016 to 2019. The biggest factor was wages: Developers in the state who receive public subsidies are required to pay construction workers prevailing wages, as determined by the state. Muoto often doesn’t. In 2020, SoLa Impact settled a class-action claim by some workers who accused the company of misclassifying them as independent contractors and failing to pay them minimum wage and overtime. SoLa settled the case for $520,000 and didn’t admit any wrongdoing. Muoto says SoLa used to hire a lot of individual tradespeople for renovations, but now it primarily uses large contractors. “The upshot of that is the small mom and pop doesn’t get the business,” he says.
In his first two funds, Muoto raised a combined $65 million. For the third he raised $115 million, which is being used to construct 21 new buildings with 1,250 apartments inside Opportunity Zones—state-designated areas that are aimed at spurring development and allowing investors to earn federal tax breaks. With the new Black Impact Fund, the company plans to build an additional 30 to 40 buildings by 2025. About 40% of the 3,000-plus units are pegged for Opportunity Zones.
SoLa’s goal for its new buildings is a 50-50 split between affordable and market-rate units. The blend of tenant types enhances profit potential for investors—if the neighborhood thrives, market rates will rise faster than Section 8 payments. It also, Muoto says, provides professional role models for kids. “You gotta be able to see it to be it,” he says.
Muoto’s not-so-secret sauce, which he’s eager to share with other affordable housing builders, is cost-gutting. To make money on rents at the Section 8 level, economies of scale and standardization are crucial, says Francisco Zepeda, SoLa Impact’s vice president for construction. “When we’re dealing with architects, we give them the specifications we need, we don’t let them tell us,” he says. An example: At a 23-unit building on Compton Avenue, the architect called for a smooth stucco exterior, at $12 a square foot. The building team substituted speckled stucco, for $8 a square foot, saving $46,000. “The reality is architects are also artists,” Zepeda says. “So getting them to design a building the way you want it isn’t as easy as it sounds.”
A few miles from the Beehive, workers are putting finishing touches on a 31-unit complex called Project Florence, slated for formerly homeless tenants. From the outside, the five-story building, clad in fluted metal panels with storefront windows at street level, resembles other mixed-use projects sprouting up around LA. Inside, Zepeda shows more of the SoLa formula. There are surface-mounted disc lights instead of recessed fixtures; thermoplastic pipes instead of metal plumbing; aluminum wiring instead of copper; and the same 8-foot ceilings found in all new SoLa buildings.
The uniformity enables use of standard, precut materials on every project, saving enormous expense from hiring highly paid subcontractors to customize everything on-site, says George Ashdown, an architect who is SoLa Impact’s construction director. “So when a framer comes out, they’re not taking sticks, cutting sticks to size, lining them up,” he says. “They’re taking sticks that are already cut, using drywall right off the truck, slapping on plywood right off the truck, making far less waste, far more green, way less manpower, at huge economies. It seems like a simple gimme, but if you ask your architect why don’t you design this way, they say, ‘But I really like those 9-foot ceilings.’ ”
As the price of Chinese steel rose more than 15% during the pandemic, thanks to tariff, shipping, and supply chain increases, SoLa asked the supplier of its modular frames to explore alternative producers in Mexico. The resulting shift saved $700,000 on 171 units in two projects.
The savings add up—they have to. To win the investment from CalSTRS, SoLa Impact’s returns had to meet the pension fund’s profit goals for its overall real estate portfolio, according to Nicholas Abel, an associate portfolio manager with the sustainable investment group at CalSTRS. “It’s really cool what they’ve been able to put together to get the numbers to pencil out,” he says.
Muoto’s broader mission—“solving income inequality for the benefit of capitalism,” as he puts it—has four pillars: access to housing, access to education, access to capital for Black and Brown entrepreneurs, and access to ownership for building wealth. Growing up in northern Nigeria, he says, there were spasms of tribal violence every several years, born from the same sense of hopelessness he sees rising in American cities today. “When things flare up, you can’t build walls high enough,” he says.
At the start of the pandemic, Muoto asked other Opportunity Zone investors if they’d help fund retraining scholarships for laid-off workers in South LA to learn new job skills such as medical coding and web design. Pushed by the Trump administration, the zones have been widely criticized as a giveaway to rich people for investing in gentrification. Muoto thought the scholarships might be good public relations for the industry. “They were like, ‘No thank you,’ ” he says. “We didn’t raise a penny.”
Then Oprah Winfrey heard about the idea and personally helped Muoto raise more than $1 million. “We gave away 200 scholarships to members of the community, and now we have maybe six dozen stories of people breaking down over Zoom saying how this changed their lives,” Muoto says.
In many SoLa Impact buildings, the company works with nonprofits and city agencies that help tenants gain access to rental assistance and other help. Jonnae Cole was living in a van, not knowing where she’d get her next shower, when city workers found her a hotel room to stay in last year. In April, a Catholic service agency placed Cole and her mother in two apartments at SoLa’s new Compton Avenue building. “Like, I’m finally, it’s good now. We’re good,” Cole says.
SoLa Impact contributes 13% of its asset management fees and appreciation to what Muoto calls “wraparound services” it bases at the Beehive: computer classes, internship placements, college scholarships, even seed investments in South LA startups. “Martin brings his entrepreneurship to philanthropy,” says Ashley Merrill, founder and chief executive officer of a sleepwear company called Lunya, who with her husband Marc, co-founder of gaming giant Riot Games Inc., are investors in SoLa’s real estate and charitable ventures. With more than $2 million from Riot Games, SoLa Impact’s foundation operates a 14,000-square-foot technology and e-sport game center at the Beehive to nurture aspiring tech entrepreneurs. Live Nation Entertainment Inc., the big concert promoter, is developing a training program with SoLa’s foundation to teach South LA kids production skills for the entertainment industry. After learning how to promote and produce a live music event, the trainees will put on their own concert in August.
Merrill’s favorite “Martin moment,” as she calls it, happened when, because of supply constraints in China, SoLa set up a temporary metal shop at the Beehive to produce doors and window frames for the headquarters campus. A few journeymen metalworkers taught more than 40 unemployed workers how to weld, and now dozens of them earn as much as $50 an hour. The homemade products cost half of what imports from China would have.
Next, SoLa is pursuing a bigger dream: homeownership, the foundation of wealth creation for most American families. Although almost 75% of White households own their homes, only 45% of Black households do. Muoto and Roger Sherman of the architecture firm Gensler are developing a project to build 14 single-family homes on 1.5 acres of church-owned land in Compton, just south of LA. Each three-story townhouse would include a downstairs rental unit and sell for less than $400,000. Covenants would require owners to live in the property for a minimum period and limit resale prices to maintain affordability.
“Martin sees this as a model to replicate in other disinvested communities, whether Philadelphia, Atlanta, or Phoenix, to help them build equity from within,” Sherman says. “He’s building SoLa as a bridge between the community and people with real money. Everybody can feel good. They make money—and build a lot of housing.”Read next: An Entire Neighborhood Is Being Flipped by a Los Angeles Developer
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