By Jon Peterson
Irvine-based Sares Regis Group will move forward to invest $120 million in committed capital for its new multifamily fund, despite having another $70 million to $80 million of “soft,” or tentative commitments that it will no longer accept.[contextly_sidebar id=”f8f4db91d88990677151605ceeedde03″]“We probably could have continued on with the capital raise for several more months and attracted a total of around $200 million to the fund,” said Jon Albro, a managing partner with Pennsylvania-based Penn Square Capital Management. Penn Square and Sares Regis are co-sponsors of the fund.
The sponsors decided it would be better to stop with five institutional investors and to turn the fund into a club fund. These investors put in anywhere from $25 million to $30 million each and include the New Mexico Educational Retirement Board and Cigna, a Bloomfield, Conn., insurer. The additional capital would likely have come from high net-worth individuals, Albro said.
The Sares Regis Group is an affiliate of Sares Regis Group of Northern California LLC.
Other market factors also made the equity raise for the first fund difficult, Albro said. “When we were in the market raising capital, there were 55 other apartment funds trying to attract investors,” he said. This is also Sares Regis’ first multi-investor fund, which leads potential investors to view them differently than if they were raising capital for a second or third fund.
“Our goal would be to get this capital invested and then when we come back with a second fund, the capital raise would be in the range of $200 million to $400 million,” Albro said.
Sares Regis plans to invest two-thirds of the fund in California, said Bill Montgomery, a co-chief investment officer for Sares Regis for the multifamily fund. The other targeted markets are Seattle, Portland and Phoenix. “This would include the Northern California markets of San Francisco, the Peninsula and the East Bay and in Orange, San Diego and Los Angeles counties in Southern California,” he said.
The fund’s first acquisitions are expected to close mid-year. The strategy is to buy properties where there is ownership distress or unfunded capital improvements. Managers also hope to buy debt secured by apartments with the goal of converting the debt into ownership.
The fund targets a 14 percent to 16 percent net return, after fees. The fund has a seven-year life. The leverage placed on the assets will be in the range of 50 percent to 65 percent. This will give the fund a total capitalization of around $300 million. There should be about a dozen properties in the fund. An average holding period on the assets could be four years to five years.
Sares Regis manages a portfolio of more than 13,000 apartments valued at more than $2.5 billion for its partners and investor clients.