I'll be joining a unique owner/operator as the director of acquisitions. The company has a long track record and a ~$2 billion portfolio of multifamily, retail and single tenant industrial that's sub 50% leveraged. Additionally, they have ~$100m of discretionary equity that has historically been deployed to acquire direct assets, but there is now a greater willingness to pursue other strategies. There is no mandate - if I could convince them to buy real estate in the Metaverse, we technically could do so. What's more, our hold period is indefinite.
Curious to get the collective groups take on interesting avenues to deploy equity?
- Preferred Equity for value-add / ground up multifamily
- Non-performing note purchases (retail)
- 80/20 JV equity w/ minimum 10-year hold period (secondary / tertiary markets)
- Covered land plays (w/ intention to seek co-development partner)
- Portfolio recapitalization for legacy RE owners (think your local power center baron, or similar)
Thoughts?
In this environment I'd be all over pref equity and bridge/mezz plays as well as non-performing note purchases. Don't think you're going to find a lot of worthwhile portfolio recap plays at $100M, and depending on your market, covered land plays can be tough to make money on right now. Everyone wants in.
Isn't that what a covered land play is, some place that won't make a lot of money now, but in 10-years can be developed.
I mean in terms of the purchase price you have to pay to get the dirt. Every developer and their grandma wants covered land plays right now in a lot of markets. Unless you find an off market deal, bidding is so competitive that expected returns (based on entitled land value or future development profits) are getting stretched absurdly thin.
How are people typically sourcing NPL's?
Also interested in this
Isn’t the main hurdle for these special situation plays the ability to actually execute and realize returns (in addition to the difficult sourcing and underwriting)?
Of course?
I’d start by figuring out what risk adjusted return the firm wants. It sounds like they’re more on the risk adverse side.
For direct acquisitions, 6-8% leveraged return.
Bruh, a levered 6-8%…I could commit that $100mm in a week with that cost of capital lmao. Literally just buy anything.
Senior debt investments could hit those returns.
Dude this should have been in your first post lol, if that's all they want then you're never going to sell them on high risk special sits stuff
Any other ideas as to potential avenues to pursue?
Digital infra
As in cell towers, or data storage facilities?
Multifamily development , fundamentals are still good.
LOAN TO OWN
Like this concept, but would have to be done within the confines of pref or mezz. We're not structured to do 1st mortgages.
Nice try, sounds like another intern trying to crowd source an answer to the classic interview question
No, but thanks for your input.
Yeah guys, this was a joke. Do you not think it’s funny that there’s a real life situation that exactly mirrors one of the most common intern / analyst interview questions?
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1. Buy my existing deals pre-CO at below market cap rates
2. LP my pursuits with the intention to buy me (the GP) out at CO
As it relates to #2, would this be best structured as JV or pref investment with a forward purchase agreement at some predetermined price / cap rate?
..
Retail NPL is really just a means by which to take control of the asset at a basis lower than if we were to buy it fully marketed. A little extra work, but we're buying 1-3 deals a year, so the added work is not really a distraction.
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