MHN Online has a nice piece out this morning talking about what institutional and private equity equity providers are looking for in their apartment building investment deals. According to Brian Ward, CIO of TCG Capital Markets, the requirements are much tighter than just a few years ago. Here are the high points:
- Align the style and needs of the capital source with the operator. A long term operator shouldn’t be matched up with private equity that needs short term holds to clear their return hurdles.
- Equity capital today generally comes in two two types: preferred equity or joint venture (See the table linked in the article for a good breakout of when to use each).
- Blind pools are very difficult to get funded today —even the best and most sophisticated operators have had trouble executing this type of equity raise.
- There must be local knowledge on the management team, both lenders and investors want their operators close by.
- Operators must have Continue reading How to Structure Apartment Building Investment Partnerships by Brian Ward of TCG Capital.
An interesting piece from Bloomberg entitled: Private Equity Has Too Much Money to Spend on Homes talking about how hard it is for large funds to buy foreclosed homes in bulk and turn them into rentals reminded me of a conversation I had with one of my private equity clients who was consulted by Tom Barrack’s Colony Capital about doing just that (and he said don’t).
“Funds planning to invest more than $6 billion to buy and rent foreclosed homes are finding it easy to raise money. The difficulty is spending it… The folks that raised capital are worried about under- accumulating properties and how to get capital out in an efficient way, Richard Ford, a managing director in the real estate investment banking group at Jefferies Group Inc., said in a telephone interview. A lot’s being raised. Less than $2 billion of institutional capital has been spent.”
It seems like between the banks’ increasing Continue reading Private Equity Has Too Much Money to Spend on REOs-to-Rentals Via Bloomberg
Report on the state of apartment building investment markets from the good folks at Joseph Bernard Investment Real Estate in Portland:
Continued positive multifamily demand fundamentals and ready access to capital at attractive rates is fueling a surge in new apartment development, according to industry executives.
Several hundred senior-level apartment executives gathered in Scottsdale, AZ, last week for National Multi Housing Council’s (NMHC) Apartment Strategies/Finance Conference and Spring Board of Directors Meeting. The following is the NMHC’s summary of what was discussed.
Continued low levels of new supply have led to a big bounce-back in rents as demand outpaces new construction. According to one panel of apartment executives, the new supply shortfall may be larger than once thought — as many as 700,000 to 1 million units — because many of the apartments built in recent years have been in the affordable, rather than market-rate, section of the market. Moreover, much of the current apartment stock dates back to the 1970s and is becoming obsolete, creating additional demand for new supply.
Select areas have seen such large upticks in the number of planned and under construction units that could turn into hot spots for potential overbuilding. In particular, certain submarkets of Phoenix, Seattle and Washington, D.C., appear somewhat at risk.
But, overall, new completions are still a very low percentage of total inventory.
Money Flowing for Multifamily
There is a wall of private capital that wants into the multifamily space. More than 250 private equity funds currently are Continue reading Phoenix, Seattle and Washington, DC apartment markets at risk of overbuilding says NMHC panel
My friend and fellow real estate investor Mei was asking about competition for single family REOs from big institutional players buying them at the courthouse as in the Bloomberg article here. The article profiles Waypoint, a Southern California real estate investing outfit that has developed some great technology to facilitate buying and leasing REOs. Check out Waypoint’s website, it’s the best example I’ve seen of the lease/option, credit repair, rent-to-own strategy for real estate investors.
It is a great question and one that I’d been wondering about too. Just so happens I was meeting with one of my private equity clients last week and we had a long conversation about that very subject. My client is the real estate/mortgage specialist at a 50B firm and they’ve been trying to crack this market profitably for about a year. Here’s the bottom line: Private equity needs to earn Continue reading Clash of housing bottom fairy tales: Big Bad Wolves v. Robin Hood Investors.