Key Takeaways:
– The multifamily investing market is currently experiencing challenges.
– Floating-rate debt, near-term loan maturities, and the shift to remote working arrangements due to Covid are causing problems in commercial real estate.
– Despite these challenges, there are still promising investment opportunities available.
– The author’s team is actively making investments that offer safety and higher returns.
– The author’s fund recently invested $5 million in a 14-asset multifamily portfolio.
– The investment is in workforce housing and the operator has a large number of units under management.
– The founders of the fund have invested their own equity and have a significant net worth.
– The investment offers a 15% payment in advance and a 2.5% closing fee.
– This is a preferred equity investment, which may be safer than common equity.
– The year-one returns are in the high teens.
– The author compares this investment to one made by Warren Buffett during the global financial crisis.
– The author believes that there is a short window of opportunity for preferred equity investments and encourages investors to act now.
– The article concludes by asking readers about the types of multifamily deals they are seeing.
BiggerPockets:
The multifamily investing realm is in a tailspin.
Syndicators are scrambling to keep up with interest rates. Investors aren’t sure whether to wait for train-wreck deals or if we will even see those opportunities.
But deals are getting done in this market, and some of them seem quite promising—like the one I’m going to discuss.
This Investment Provides 17.5% In Year-One Cash Flow
Many investors are concerned about headlines regarding commercial real estate deals going south. A lot of the problems are connected to floating-rate debt, near-term loan maturities, and the office apocalypse caused by Covid and remote working arrangements.
We believe many investors can avoid these issues altogether.
I’m not sitting on my hands waiting for the market to shift. On the contrary, my team is making investments that are poised to provide greater safety and higher returns than we’ve seen in the bull market of the last decade.
In fact, current challenges in the market are actually creating the strongest opportunities we are investing in now.
Details on the deal
Our fund recently invested $5 million in a 14-asset multifamily portfolio. Here are a few details:
- Workforce housing: Operator owns and manages over 4,000 units.
- No LP capital: Founders fund all equity from their own profits and balance sheet.
- Founders (~ $200 million net worth) signed: A personal guarantee on this investment.
- Current pay: 15% paid a year in advance.
- Closing fee: 2.5% paid in advance (goes straight into our fund, not to us).
Please note that this is preferred equity, not common. This means we are higher in the pecking order, which could translate to a theoretically safer investment.
Like debt, our payments are contractual and personally guaranteed by an experienced sponsor. But unlike most debt, our year-one returns are in the high teens.
Recall that Buffett made a similar move 15 years ago (in 2008) in the worst weeks of the global financial crisis, making a profitable preferred equity investment in Goldman Sachs.
As we’ve stated in prior articles, we believe this economy is providing us with a short window for preferred equity, and we believe investors need to act now. We don’t know how long these unique opportunities will be available.
What type of multifamily deals are you seeing these days?
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*Mr. Moore is a partner of The Wellings Real Estate Income Fund, the investment advisor of the Wellings Real Estate Income Fund (WREIF), which is available to accredited investors. Investors should consider the investment objectives, risks, charges, and expenses before investing. For a Private Placement Memorandum (“PPM”) with this and other information about the Wellings Real Estate Income Fund, please call 800-844-2188 or email [email protected]. Read the PPM carefully before investing. Past performance is no guarantee of future results. The information contained in this communication is for information purposes, does not constitute a recommendation, and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws. All investing involves the risk of loss, including a loss of principal. We do not provide tax, accounting, or legal advice, and all investors are advised to consult with their tax, accounting, or legal advisors before investing.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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Property Chomp’s Take:
The multifamily investing realm is in a tailspin. Syndicators are scrambling to keep up with interest rates. Investors aren’t sure whether to wait for train-wreck deals or if we will even see those opportunities. But deals are getting done in this market, and some of them seem quite promising—like the one I’m going to discuss.
This Investment Provides 17.5% In Year-One Cash Flow
Many investors are concerned about headlines regarding commercial real estate deals going south. A lot of the problems are connected to floating-rate debt, near-term loan maturities, and the office apocalypse caused by Covid and remote working arrangements. We believe many investors can avoid these issues altogether.
I’m not sitting on my hands waiting for the market to shift. On the contrary, my team is making investments that are poised to provide greater safety and higher returns than we’ve seen in the bull market of the last decade. In fact, current challenges in the market are actually creating the strongest opportunities we are investing in now.
Details on the deal
Our fund recently invested $5 million in a 14-asset multifamily portfolio. Here are a few details:
– Workforce housing: Operator owns and manages over 4,000 units.
– No LP capital: Founders fund all equity from their own profits and balance sheet.
– Founders (~ $200 million net worth) signed: A personal guarantee on this investment.
– Current pay: 15% paid a year in advance.
– Closing fee: 2.5% paid in advance (goes straight into our fund, not to us).
Please note that this is preferred equity, not common. This means we are higher in the pecking order, which could translate to a theoretically safer investment. Like debt, our payments are contractual and personally guaranteed by an experienced sponsor. But unlike most debt, our year-one returns are in the high teens.
Recall that Buffett made a similar move 15 years ago (in 2008) in the worst weeks of the global financial crisis, making a profitable preferred equity investment in Goldman Sachs. As we’ve stated in prior articles, we believe this economy is providing us with a short window for preferred equity, and we believe investors need to act now. We don’t know how long these unique opportunities will be available.
What type of multifamily deals are you seeing these days?
*Mr. Moore is a partner of The Wellings Real Estate Income Fund, the investment advisor of the Wellings Real Estate Income Fund (WREIF), which is available to accredited investors. Investors should consider the investment objectives, risks, charges, and expenses before investing. For a Private Placement Memorandum (“PPM”) with this and other information about the Wellings Real Estate Income Fund, please call 800-844-2188 or email [email protected]. Read the PPM carefully before investing. Past performance is no guarantee of future results. The information contained in this communication is for information purposes, does not constitute a recommendation, and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws. All investing involves the risk of loss, including a loss of principal. We do not provide tax, accounting, or legal advice, and all investors are advised to consult with their tax, accounting, or legal advisors before investing.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
