By Jon Peterson
Newport Beach-based Sares Regis Group has been awarded a $30 million commitment for the Sares Regis Western States Multifamily Fund, an endeavor led by Rob Wagner, co-founder and managing director of Sares Regis Group of Northern California LLC in San Mateo.
The New Mexico Educational Retirement Board took the action based on the advice of staff, including Mark Canavan, real estate assets portfolio manager for the pension fund, who asserted that demographics supporting apartment demand overwhelmingly argue in favor of investment in multifamily properties, according to a memorandum presented to the board’s investment committee in anticipation of its May 24 meeting.
The overall investment strategy is to buy and improve B- and B plus-grade apartment complexes in targeted markets including the San Francisco Bay Area, San Diego, Los Angeles, Orange County, Seattle and Phoenix.
Managers anticipate buying up to 20 properties for the fund, which is to be leveraged at no more than 65 percent at a portfolio level and no greater than 75 percent on an individual property basis. The investment period for the fund is two years while allowing a one-year extension. The commingled fund’s term is seven years with a one-year extension possibility.
Capital-market dynamics still provide an excellent opportunity to purchase assets in an opportunistic manner, Canavan said, citing an external analysis by a Boston-based researcher and forecaster on commercial real estate markets. A large pool remains of real estate assets with outstanding debt obligations that cannot be refinanced due to a lack of available funds, according to Property and Portfolio Research, which is wholly owned by CoStar Realty Information Inc.
The memo also cited a recent Pew Research Center study, which asserted that only 20 percent of echo boomers—generally, the children of baby boomers—expressed that home ownership is one of the most important things in their lives. Yet, for those who do express an interest in home ownership, financing alternatives available to their parents no longer exist, such as loans that require no initial down payment and subprime loans, or those extended to borrowers with less than stellar credit where the perceived increased risk is compensated with higher interest rates.
The Pew Research Center is a Washington, D.C., -based nonprofit corporation that provides impartial analysis on issues, attitudes and trends affecting the United States and the world.
The Sares Regis Group of Northern California declined immediate comment for this story, citing the necessity of gaining prior client approval.
The company is co-sponsoring the Western States Multifamily Fund with Radnor, Penn., -based Penn Square Real Estate Group. The projected total equity raise is $200 million, and the compounded preferred return for the limited partners is estimated at 8 percent. The overall targeted return is 14 percent to 16 percent, net of fees. The general partner’s co-investment is 2.5 percent of the total equity raise, according to the New Mexico staff report.
New Mexico values its real estate portfolio at $350 million and has another $100 million to invest before it reaches its targeted allocation of 5 percent for the asset class. The current real estate pacing plan calls for $50 million to be invested in value-added strategies this year, including the commitment to Sares Regis.