Chicago-based multifamily-property owner Waterton Residential plans to grow its San Francisco Bay Area footprint with the recent closing of its $500 million Waterton Residential Property Venture XI.
The company’s Northern California portfolio already totals 700 units, including two Bay Area properties.
“There are several factors that we like about Northern California. It has a high propensity of renters. There are significant barriers to enter the area for new construction, and good job creation with many of the technology companies expanding,” says David Schwartz, Waterton co-founder.
The first closing of Residential XI had a total equity raise of $490 million. Most of this capital came from 10 institutional investors. The California State Teachers’ Retirement System has committed to invest $140 million in the Waterton fund. Another $100 million commitment is from the Oregon Public Employees Retirement Fund. The Kansas Public Employees Retirement System has committed $27 million. The other $10 million for the fund will be raised over the next three to four months. This capital will come from Waterton principals and friends and family associated with the company.
Residential XI is a value-added investment fund focused on apartments. fThe deals are expected to involve the purchase of existing units that need renovation or redevelopment and the acquisition of debt that is secured by an apartment complex. There also will be some deals where a property just needs a capital infusion from a new equity source.
The total capitalization for the commingled fund is expected to be $1.5 billion. This is achieved through the use of 67 percent leverage on the portfolio.
Waterton hopes to achieve net internal rates of return for its investors of 12 percent to 15 percent. The real estate manager has a three-year investment period to find deals for the fund, which has no assets now.
Besides the Bay Area, the company expects to invest in major markets along the East and West coasts and in Florida, Texas, Denver and Chicago.
Residential XI is Waterton’s first multi-investor institutional fund. Its residential fund series VII through X were all 100 percent capitalized by the California teachers fund. The most recent of these was Residential X, where in 2008 CalSTRS invested $200 million in equity for a 90 percent interest in the fund; Waterton invested $22 million for the remaining 10 percent.