Crittenden was interested in reporting on the growing number of small firms like ours who were putting together funds (syndications) and wanted to know what made them tick.
I was actually unaware the article came out until I received an email from an interested investor expressing interest in our venture this morning and it has only been one day since publication!
Below is a summary of the most recent article I was quoted in. The summary of the article talks about many of the big investors are on the sideline or only looking for Class-A assets leaving great opportunities for the smaller entrepreneurial companies putting together syndications.
NEW FUNDS FUEL INVESTMENTS
Expect a growing number of investors starting to go on the offensive again this year by raising and utilizing fund resources to opportunistically shop for assets across the country. A large cluster of bigger institutional funds are taking a temporary hiatus, leaving the arena open for smaller investment vehicles priced below the $30M mark to make their move. Look for such firms including JVM Realty Corporation, JDT Holdings LLC,Gabhart Investments Inc. (GII) and KC Venture Groupto fish around for market-specific deals using discretionary cash coffers.
As the availability of for-sale product continues growing this year, bet on more capitalized entrepreneurial funds to pop up and take advantage of good pricing. Most will cash out or look for an exchange at the end of the hold period. Don’t be surprised to see the majority of smaller funds modus operandi jump on distressed plays that can yield tantalizing returns. On the other side, count on select larger funds from players like Bell Partners to remain active and shop for Class-A/B complexes, while Boston Capitalcloses on a mega tax-credit fund and is already hard at work on a succeeding fund of nearly $300M.
The article goes on to state that it is no surprise these funds are favoring apartments as a safe risk adjusted return. Because of this buyers are trying to raise money to take advantage of these opportunities. Especially with the Fannie Mae, Freddie Mac and FHA providing such attractive apartment financing at such low rates.
The discounts these funds are seeing are on average 15% to 25% and are focused on older Class-B and C products in historically good markets. Most of these deals are penciling out with IRR’s of at least 20% (we are shooting for 25% over a 5 year period).
The report also mentions that on the other side larger capitalized buyers typically chase after quality Class-A product. This is what I am seeing also.
We were the smallest fund on this list (for now).
Gabhart Investments looks to raise an aggregate $2M investment vehicle to acquire between 60 and 200 units in recession-beaten locales such as Arizona, Las Vegas and California’s Inland Empire. Expect the equity to be raised within six months and be fully committed over a 12-month period. The fund continues to look for JV partnerships and qualified investors putting in $50,000 – $500,000. President Curtis Gabhart hopes to pay cash for the deals and eventually refinance them and recycle the capital. He looks for an IRR in excess of 20% and a three- to five-year hold. Count on Class-B to -C distressed.
The ranges of these Real Estate funds were anywhere from 2-25 million in equity and were in many different markets throughout the U.S. including, Florida, Texas, Phoenix, Las Vegas and others.
Our apartment acquisitions will be primarily within a 3 hour drive or flight from San Diego which will include Phoenix, Las Vegas, and The Inland Empire. In addition we feel that San Diego will have some select opportunities towards the end of this year and through 2011 & 2012. In addition to apartments we will also seek other complimentary opportunities like 1-4 unit flips while we are in that market which will give us better efficiencies and economies of scale and build stronger and better relationships with the locals.
This new fund will expand on the recent success we have had buying and flipping REO single family homes. Currently we have more investors than inventory and this will allow us to expand the opportunities for us and our investor partners.
I will post our business plan soon that we are using for the 1-4 unit single family homes and for the new apartment venture. To learn more about what goes into developing a private placement memorandum (PPM) you can read a previous post by clicking here.
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