What kind of returns are LPs targeting in opportunistic funds these days?

Curious if you've looked at any deals in Austin? If so, what would you say you guys would look for here?

Curious how you guys look at return multiples. Construction projects are shorter than typical CRE investments - developers get their capital back much faster, which boosts up IRR.

picklemonkey:

For development we are looking for 20%+ IRR. We would dip lower if the project was located in a true gateway city (NY, Boston, D.C, Chicago, LA, or SF). It's hard to justify going much below a 20% IRR when we have sponsors that average a 16% - 17% IRR on their value add deals. There is added risk with any development and that is something we need to be compensated for.

For opportunistic value add deals we would need to see at least a 15% IRR.

Core Plus can be in the 10% - 12% range depending on how heavy the lift is.

What's definition of opportunity value added vs opportunistic?

I invest with taxable capital and I've seen tax exempt investors dip down to the ranges you've described. On an after tax basis we are hitting roughly the same returns.

Curious. What markets are you finding development deals with 200 bp spreads from build-to-exit?

For us, most markets are far tighter than that, but we've found a few markets in Northern Nevada, Washington, and Florida where those are achievable AND make sense from a risk-reward standpoint.

Sometimes hard to even pencil within 200 bps of those to be honest.

This is pretty spot on. From a multifamily perspective, no one will say it in their PPM, but we're all telegraphing lower return expectations to our LPs in the near term.

We've been doing a bunch of value-add multifamily in NYC and hitting (conservative) 13-14% returns. 5-7 yr hold.

ILikeCommercialRealEstate:

18% to 20% on opportunistic deals. We hardly ever do development.

So what do you think new development would generally require LP IRR targets of? 22-25%?

Typically 65% LTC, but can range from 50% (if we can't get proceeds) up to 70% (our threshold).

60% - 65%, we might go higher leverage with some pref equity or mezz on deals in gateway markets.

Good point. On multi we're solving to 11-13% net to our investors (post acq fee, AM fee, partnership costs etc). We underwrite 65-70% debt, realistic growth (we would only u/w 3%+ in a strong market like phoenix for instance) and cap rate expansion of 5-10bp/year based on building vintage and general market macros.

The only useful information provided by the brokers are the historical financials and the rent roll. Even that can be manipulated by moving R&M into Capex to inflate NOI. It's amazing how much time and energy IS firms put into their books for sections that almost no one even references. If you underwrite deals based on broker assumptions you will be very disappointed.