Phoenix Realty Group has formed Metropolitan Workforce Housing Fund, a $250 million fund through which it will provide financing to developers to build market-rate housing for middle income families in New York, New Jersey and Connecticut. The company hopes that the fund will help with the construction of 4,000 units or about $1 billion of real estate.

The fund, the company's first East Coast initiative, will make individual investments of $3 million to $20 million in projects of $10 million to $100 million. "The transaction size is under the radar screen of most institutional investors, most of which don't do deals that are under $10 million or $15 million of equity," said Michael Fried, founder and ceo. "Mid-sized developers told us that there was a lack of equity capital for this kind of deal." About 75% of the development is financing through construction financing. The remainder is financed via equity, with Phoenix providing 90% of the equity.

Phoenix is targeting this area because the New York metro region has seen substantial job and population growth. At the same time, escalating housing costs are pricing out middle income residents such as teachers, office workers, firefighters and police officers. "This group has been totally priced out of certain areas," Fried said. "No one is building that in New York. You can get a whole lot of million-dollar or $800,000 apartments but there are few condos or lofts in the $450,000 range."

The company's model, developed for its California funds, differs from conventional market-rate housing in a number of ways. This includes acquiring land on the periphery of hot zones. In Los Angeles, the company backed a development near the Staples Center where many major institutional investors are building for-sale housing. Higher-end properties also tend to be larger. "Instead of 1,200 to 1,400 square feet, our developers generally focus on properties of 900 to 1,000 square feet," he said In addition, the company uses less expensive construction materials and appliances. This includes using granite imported from China rather than Italian granite.