PE Fund Stays Active, Making $1-30MM LP Investments with Local Value-Add Multifamily Operators

by | Apr 18, 2024 | Featured Capital

Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.

This seasoned private equity fund boasts over 15 years of investment experience, offering a flexible mandate to initiate robust LP equity investments primarily in multi-family properties. Central to their investment approach is partnering with local operators equipped with in-house property management capabilities. This strategic focus enables sponsors to gain insights into sub-market dynamics and operational controls, enhancing the potential for significant returns on investments.

Their investment commitments typically range from $1-30 million, structured within 90/10 or 80/20 joint ventures. While they maintain flexibility in equity contribution splits, they prioritize substantial “skin in the game” from their sponsor partners.

Emphasizing cash flow as a primary underwriting metric, the fund targets deals with strong initial cash returns of at least 5.0% by year 1, escalating to high single digits by year three. They strategically target markets exhibiting favorable rent and economic growth dynamics to achieve these cash-on-cash returns.

Notably, the fund’s advantages include the ability to underwrite smaller LP checks and invest in various asset vintages, including properties from the 80s, 70s, and selectively the 60s, provided there are sufficient capex reserves and renovation plans to mitigate potential unforeseen expenses. Additionally, their streamlined and experienced deal team enables swift decision-making, with initial feedback typically provided within a week and the potential to close transactions in 3-4 weeks or less, contingent upon the completion of third-party processes.

Capital Type

LP Equity

Geography

  • Nationwide (Preference for suburbs of primary markets, strong secondary, and strong tertiary markets).

  • Does not like major downtown locations in primary markets

Property Types

  • Existing Multifamily only (Garden Style, Townhomes style, BTR ) *No high-rise

  • Ideally seeking 100+ unit projects

Use of Funds

Acquisition, Refi / Recap

Construction

Light to moderate Value-add

Sponsorship

  1. Require sponsors with similar deal experience to the subject transaction.
  2. Require sponsors that either live local or have existing assets in the market of the subject transaction.
  3. Sponsors must have in-house property management

Check Size

$1MM to $30MM

Target IRR

18.0%+ 

Target Multiple

2x over a 5-7 year hold

Hold Periods

5-7 years

Prepayment Structure

12 months min interest

Focused Underwriting Metrics

Seeking a 5% year 1 CoC that grows to high-single digits CoC by year 3. Stabilized CoC metrics subject to location

Allowable Fees

Market rate fees allowed including Acquisition Fees and Asset Management Fees

Senior Debt Requirements

Senior debt needs to have a fixed rate. Focused on mostly bank debt and agency debt, however willing to entertain fixed rate private debt if appropriate CoC metrics are hit.

Closing Time Frame

Can close in 2-3 weeks if 3rd parties are already completed. Typically like 30± days

If this capital source may be of interest, book a call to discuss a potential capital arrangement.

Read our last Capital Spotlight: Capital Spotlight : CA-Based Single Family Office Offers $5MM-$40MM Bridge Loans up to 85% LTC