Recapitalization
Let's assume a mid-size real estate organization (+/- $1B in assets) which is owned with no LPs wants to recapitalize and sell off a sizable stake and bring in a new investor(s) to own the company alongside management.
In PE this happens all the time. Management rolls over some equity. Does this ever happen with real estate?
What IRR are investors looking for on stabilized real estate? In PE, much higher. Curious what target is here...
Obviously, there is potential from growing by making new investments opportunistically to push returns higher...
Thanks in advance
Sure, recaps happen all the time.
I can only speak for Multifamily, but target returns right now are in the 12-15% range for a relatively stable asset w/ maybe some light value-add upside. Investors are going to expect at least a 6-8% preferred return. Assuming a 5% - 10% co invest, market promote would be a 80/20 split w/ maybe a second tier at 65/35 after a 15%.
I don't know what returns people look for, but this is fairly common - plenty of firms want to do OpCo or platform investing. Personally I think it's a huge mistake unless the selling partners really want out of the business, but I guess the possibility of a nine figure payout is hard to turn down!
Happens all the time. A lot of sponsors out there that want to recycle cash while also holding onto AM fees and AUM. So they hold onto 5-10% and recap the rest. Investor target returns will be dependent on the profile of the assets (ie core, core plus, value add, etc)
any idea of success level?
Lower IRR for stabilized assets
20%+
What is the target IRR for stabilized assets in the multi-family, self-storage, industrial and net lease sectors in such a platform? Assuming investors will pay up if they get ROFR or exclusive rights to specific future deals within same strategy...
If fully stabilised, between 10-12% levered IRR.
Also, one of the main reasons investors want to invest in a platform and own the OpCo is due to the long term view of growing the platform, achieving economies of scale and, on paper, pay a lower percentage of operating management fees that the market is currently offering. For instance, I know someone is achieving an operating management fee of 3.5% of revenues by owning the OpCo vs 5-7% that third party operating management companies are able to offer, and this is due to the scale of the platform.
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