Fairfield and Brookfield to Invest in Bay Area and Seattle with Next $850MM Commingled Fund

Metropolitan Transportation Commission, Association of Bay Area Governments, Bay Area, Request for Transformative Projects, Horizon, MTC, ABAG

By Jon Peterson

San Diego-based Fairfield Residential and Toronto-based Brookfield Asset Management will be looking to find transactions in both the San Francisco Bay Area and Seattle for its newest commingled fund, Brookfield Fairfield U.S. Multifamily Value Add Fund III.

The emphasis for transactions for the fund will include the western region of the country, as stated by the Ohio Bureau of Workers Compensation Board. This investor has approved a $75 million commitment into the fund.

Fairfield has a history of investing capital in both the Bay Area and Seattle. Its Value-Add Fund II had a significant presence in Northern California. 20 percent of the fund is represented in this region with 10 percent in San Jose and 5 percent each in Oakland and Sacramento. The exposure in Seattle is 10 percent.

Besides the West, Fund III will also be investing capital in the “Smile States.” This will include states like Florida, Texas, Georgia, Connecticut and Massachusetts.

Fairfield and Brookfield are now in the process of raising $850 million for Fund III, as written in a board meeting document from the Ohio BWC. Almost 60 percent of this capital has already been raised with closed commitments reaching $503 million. $330 million of this capital is coming from the sponsors of the fund. Brooking is contributing $300 million and Fairfield will be putting in the lesser of either $30 million or 5 percent of the aggregate commitments made to the fund.

Most of the transactions for the fund will include buying of existing apartments that have a value-add play. This is will make up at least 70 percent of the fund. These deals will focus on the acquiring of B and C quality apartments that will be repositioned through capital improvements. The long-range plan is to sell them as class A or high-quality B assets in supply-constrained target markets. No more than 30 percent of the fund will be to develop properties in constrained markets with a shortage of newly-built core assets.

Fund III will be seeking investments that can produce a targeted net internal rate of return in the range of 12 percent to 13 percent. The maximum leverage allowed for the fund is 65 percent at the fund level.

Fairfield Residential is a company that is owned by two major institutional investors, as stated in an Ohio BWC board meeting document. The majority owner of the company is Brookfield. California State Teachers Retirement System (CalSTRS) is a minority owner of the firm.