Small REPE Groups - What are you investing in and how has your criteria changed for 2022
Just curious to see how smaller groups ($1B< AUM) are reacting to the increasing interest rates and the slower adjustment to pricing thus far into 2022. Additionally, how is capital raising going as most deals are raised on a deal by deal basis for this type of firms.
My firm is in a serious lull for deals, none of our investors are really looking to deploy capital for next 4-6 months unless something extraordinary comes through. What types of deals are you guys seeing work for your firm?
Small groups have to get scrappy and creative. Finding any way to drive value and UW lower expenses than the other shops in the best and final. In short- pull levers until the green light turns on.
Lowering the pref is the other answer.
Trying to place preff / mezz for multifamily value-add and construction deals where last dollar exposure is 80/85 % LTC.
The value add component provides NOI upside to keep up with increase in debt service from higher interest rates. Downside is owning brand new multi at a reset basis.
Interesting, my group is doing the same, higher ltc though, working very well to date and no reason to suspect otherwise going forward
PM me? I think it's a great investment strategy today. I'm interested how you're sourcing those deals. I think all the Freddie/ Fannie T-12s are public record so you can figure out pretty quickly who needs equity / mezz / preff based on the 1.25x coverage.
What’s the pricing on something like this? Up to 85% pref.
Mid to high teens depending on who is originating
Family Office/Syndicator here, we're more or less pencils down for now, not willing to chase yield to markets we don't like and waiting to see how prices react to interest rates as nothing pencils with cap rates below interest rates.
Concerned on office with fed moves, could see a situation where office becomes very attractive in 12-18 months time. High quality creative/class a only though. Think there’s a lot of physically obsolete office out there there will forever remain under occupied.
We have an opportunity to buy a big class A building in a major city and we keep adjusting pricing because the WALT is under 3 years. It's almost at a 10% cap and even with the interest rate the upside looks decent. Concessions, subleasing, vacancy all increasing while interest rates increase has made office a tough sell unless the caps follow.
I don't have an answer, but I'm going to call you out on "most deals are raised on a deal by deal basis for this type of firms.", and not for the typo.
If it's REPE (which is what you asked about), capital is not raised on a deal-by-deal basis. The GP/LP fund structure is literally the defining characteristic of "Private Equity".
Private equity is a broad term and applies to both structures. Also, in a deal-by-deal scenario you still have a GP and an LP. The main structural differences are just discretion and timing.
This is just wrong. Private equity can also be raised on a deal by deal basis. The defining characteristic of "private equity" actually lies in the word "private".
Regardless of how small the AUM of a firm is, raising equity deal-by-deal is not in any conventional sense "REPE", it is syndication. If I go out and ask three of my uncles for capital and then I buy a commercial building, I am not a "real estate private equity" investor. There is nothing wrong with syndication, but referring to any investment made with privately-sourced capital as "REPE" makes you sound silly because to any contemporary investor it refers to a fund-level GP/LP structure. The word "Private" is a requirement, not a definition as you claim.
I'm genuinely sorry that this is derailing the purpose of OP's post, but even people at shops with billions of AUM like Pinetree aren't going around referring to their firms as "REPE" shops just because they don't issue stock or work solely off the balance sheet to buy deals.
Based on the cascade of MS though, I'll open myself to the possibility that there are fund-less firms out there referring to themselves as PE investors. Please link some below so I can educate myself.
Maybe I should not have put "most", but I'd be surprised if there are REPE with $300M AUM raising blind funds, unless these funds are very small.
We do deal by deal with pension funds and institutions in a LP/GP structure because we don't have the track record or compliance inhouse for us to raise $100M+ blind funds which is what we need as our range for closing deals is typically $60M-$200M. If you are expanding your investor pool, I'd lean on thinking that most firms have to do a standalone deal at least a couple times before getting capital you can deploy at your own discretion if the firm is 5 years< and $1B< AUM.
This is false. I just so happen to be working with a smaller sponsor who invests on a deal-by-deal basis and is having trouble raising equity for their $100MM fund.
It’s just too low of a dollar amount to not invest on a deal-by-deal basis. You get 2 maybe 3 properties in a $100MM fund, why would investors not want to pick and choose at that point?
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