By Jon Peterson
ArcWest Partners, a new $150 million joint venture between Los Angeles-based Belay Investment Group and Arc Capital Partners, has its sights set on San Francisco and Oakland as target markets to invest its capital.
“The San Francisco Bay Area is a top-10 market that a great deal of millennials want to live and work in, and the region also has strong job and population growth. All of these factors fit in well with our overall investment strategy for the joint venture,” says Neville Rhone, a managing partner with Arc Capital.
The overall investment strategy is to target value-add and opportunistic acquisitions in urban submarkets that are experiencing strong millennial demand growth. The focus would be with existing apartments and shopping centers. The apartments would be properties that have market rate units. The retail would be grocery-anchored retail that might include some ethnic oriented retailers. Some transactions could also have a strong re-development play.
The majority of the equity for the joint venture was supplied from Belay Partnership Ventures II. The equity invested from this commingled fund was $50 million. “I think that the investment strategy that we have for Ventures II fits in with the strategy that Arc Capital is very familiar with. It makes a very strong mix,” says Barry Chase, a managing principal with Belay.
The commingled fund has received one commitment. This was a $200 million allocation from the California State Teachers Retirement System. “As the lead investor in the fund, we are pleased to be providing a path of growth for Arc Capital Partners and look forward to sharing in the success of ArcWest Partners,” says Mike DiRe, director of real estate for CalSTRS in a prepared statement.
ArcWest Partners is a venture where Arc Capital is the operating partner and it will be responsible for finding and sourcing transactions for the venture. The potential investment opportunities would need to be approved by Delay before a final closing can occur.
The expectation is that there will be a total of four to five properties placed into the venture. These would be located in California and Texas. The transactions for the venture will have a total capitalization of $25 million to $50 million per deal. On a property level basis, the targeted net IRRs for the deals will be in the mid-teens range. The leverage component would be up to 65 percent.
ArcWest Partners is the first joint venture that has been consummated for the Ventures II commingled fund. The commitment from CalSTRS represents the first pension fund to go into the commingled fund. Belay is planning on making the commingled fund a club fund with only a few large commitments from some of the major institutional investors around the country. The targeted capital raise is $500 million.
The long range plan for Ventures II is to create a total of six or eight programmatic joint ventures make up the entire fund if the capital raise gets to $500 million. The amount of equity invested with each manager could range from $25 million to $100 million. Belay is planning to bring in operating partners that will allow the commingled fund to have diversification both by property type and on a geographical basis. Other markets where it might look to invest in for the future would include Seattle, Southern California, Portland, South Florida and Raleigh.