At Schelin Uldricks & Co., our equity sources include both institutional and individual high-net-worth investors. On the institutional side of the market, demand for new investments is lukewarm, at best. Many institutional LP investors do not appear to be in any rush to make new investments and are very selective with the projects they fund. New development deals are very challenging to complete with many fund managers focusing on distressed investing, value add multifamily, and industrial assets. They will look at all other asset types, but they need to have a compelling story to receive funding. Here is what we are seeing:
- Sponsor Co-invest: 5% – 10%
- Asset Types: Value Add Multifamily, Small to Medium Bay Industrial, Special Situation/Distressed Investing, Asset Recapitalizations
- Markets: Primary, Secondary, and some Tertiary
- Development: Minimum +1.50% Yield on Cost spread over prevailing cap rates
- Deal Size: Minimum $10MM, no maximum
- Closing Timeline: ~90 days
The individual high-net-worth investor networks are active but cautiously investing. They are shying away from new development and seem to be more interested in core to core-plus and light value add deals. Many retail investors that invested in the 2020 – 2022 vintages of private deals have faced numerous capital calls and/or interruptions to distributions. For this, they are more focused on leverage, coverage ratios, and sponsor liquidity. Keys for this network are simplicity of business plan/mitigated execution risk, fixed rate debt, investor friendly waterfalls, alignment of interests/market-rate fees. However, they are less theme driven than institutional investors and will look at asset types like hospitality, student housing, senior living, and self-storage. Multifamily deals are still the most desirable to bring to the retail network. Here is what we are seeing:
- Sponsor Co-invest: ~1% – 5%
- Asset Types: Multifamily, Industrial, Hospitality, Retail, Student Housing, Senior Living, and Self-Storage
- Markets: Primary, Secondary, and Tertiary
- Development: Very challenging, must be compelling project
- Deal Size: $1MM – $7.5MM
- Closing Timeline: 120+ days, depending on capital raise/asset type
Current Deal Case Study:
Schelin Uldricks & Co. affiliate, Pierside Capital, is finishing up an individual high-net-worth investor placement of preferred equity for a portfolio of assets in New Jersey. The portfolio consists of a 70-room beachfront boutique hotel and an event center redevelopment, both of which are hospitality-related, for a sponsor based in the Mid-Atlantic region. Average investment size per investor is around $270K and will end up taking about 6 months to complete the capital raise. This capital raise was structured with double-digit current pay, paid monthly to new investors with a straightforward business plan. There is sufficient cash flow off the asset to support the new preferred equity capital raise so it was viewed favorably in the individual high-net-worth investor network. This was the sponsor’s first investment offering to our network of 15,000 individual high-net-worth investors. For a sponsor’s first deal on our platform, it takes a bit longer to complete the capital raise since we have to introduce the sponsor and deal to the network. We expect follow-on deals to become easier to complete for sponsor clients in this network.