At Schelin Uldricks & Co. we are constantly speaking with commercial real estate capital sources to stay up to speed with changes in their investment programs and to stay in front of market trends. This past week we completed a survey of three institutional equity investors to see what their current investment criteria are, and what the deals looked like they were targeting. Here is a summary of our findings and some individual investor commentary:
Investor #1
Profile: Bulge bracket institutional investor
- Single investments range in size from $25MM – $75MM on average for LP investments with local operating partners
- Targeting returns in the mid-high teens range
- Most investments are off-market or quasi-off market
- Senior leverage is modest, in the 50-60% LTC range mostly provided by banks or insurance companies. Not doing a lot of deals with debt funds
- Investment duration is mostly under 5 years but they can extend to 7 year holding periods if necessary
- Most actively investing in multifamily and industrial real estate, but can form programmatic crossed JV’s with operators of smaller asset classes (self storage, light industrial, etc.) to get exposure to those segments
- Still seeing attractive opportunities to fix broken deals through deleveraging and completion rather than new acquisitions & development projects
Investor #2
Profile: Middle market institutional investor
- Single investments are typically $10MM+ for LP investments but can go lower for a Co-GP investment
- Targeting returns in the 20%+ range, mostly opportunistic investments
- Transactions are typically 3-5 years in duration for a fix & flip type strategy but can extend duration and lower yield for “generational” buying opportunities
- Attractive opportunities for them include deals with multiple exit options and demonstrated ability to grow cash flow through operational efficiencies rather than relying on cheap debt or market improvements
- They can also offer preferred structures, but typically on transitional assets or deals that need to be de-leveraged. This structure often includes participation kickers
- They have recently seen success in recapping legacy OZ deals with long term pref, buying out HNW investors and giving them an early exit
Investor #3
Profile: Foreign middle market institutional investor
- Single investments as low as $5MM (pref) but most are $10MM+ for passive promotable LP equity
- Target returns for multifamily pref for institutional quality assets are in the low double digit range +. Their pref can be structured with favorable current pay rates, often times below the senior mortgage
- JV investments require more opportunistic high-teens / low 20’s returns
- Investment duration is 3-5 years
- Seeking assets or investments at a discount to replacement cost and a discount to prevailing market prices. Preferences is for deal strategies to include operational efficiencies
- They will look at multifamily development but are still seeing strong recapitalization / deleveraging opportunities
Please reach out to us directly if you would like more information on any of these programs or if you would like us to evaluate your project to see if it’s a candidate for this financing.
Ethan Schelin
Managing Partner
Schelin Uldricks & Co
949-335-2241