Family Office Real Estate

Private investment offices are abuzz with multi-family real estate investment deals

The appetite for multi-family real estate investment deals is growing across the global family office community amid expectations that a rise in interest rates will be deferred by a renewed surge in Covid-19 infections, easily capable of holding back economic recovery. A flood of cash recently pushed money market rates close to zero and bond yields have edged down. 

Multi-family was viewed as the best real estate option by respondents to a 2021 survey by Evergreen Property Partners, reported in Family Capital on 3 June. Around 75.5% of family offices wanted to invest in the sector, against 70.5% in 2020.

Multi-family is also popular among family offices because they like to diversify rental streams across a range of tenants

Family offices are taking advantage of the wealth gap which is making it easy for them to raise money in the capital markets for apartment purchases while individuals who are more prepared to rent because they can’t qualify for mortgages to buy homes at current prices. 

The low cost of finance for landlords was demonstrated in August by a German multifamily commercial mortgage-backed securitisation (CMBS) known as HAUS-Elec 39 on a margin of 65 basis points. This was tighter than CMBS for other real estate, including the red-hot logistics sector.

CMBS deals seek to package up loans advanced to acquire or refurbish blocks of apartments. Marko Feiertag, a portfolio manager at TwentyFour Asset Management, agrees the margin was tight – probably the tightest since the credit crisis of 2008. The low margin reflects the rise in German residential values, plus decent Covid-19 furlough payments for workers. 

The voids in the underlying property are far higher than average at 33%. Furlough payments cannot last forever. But investors are encouraged by price trends and happy to look forward to planned refurbishments to modern environmental standards by owner Brookfield, which should push up its rent roll. Moody’s has given the issue its top rating of AAA.

Multi-family is also popular among family offices because they like to diversify rental streams across a range of tenants. The sector has also benefited from the growing popularity of working from home and weakness in the commercial sector. 

Research by Morgan Stanley in 2020 found that 95% of residential tenants paid their rents on time, against 91% in logistics and 84% in offices. Rents and property values have been steadily rising. Data from the International Monetary Fund confirms that prices across the world have gone up on a coordinated basis, with real estate often seen as a hedge against inflation. 

Dubai has suffered an oversupply since the credit crisis, but its multi-family prices have hit a multi-year high.  Half the property deals taking place in Japan are in the multi-family sector, centred on Osaka and Nagoya 

According to German manager DWS: “With prime rent growth forecast to average more than 3% per annum over the next decade, the European residential sector is expected to outperform all other commercial real estate sectors.” 

DWS followed this up with apartment purchases in Spain and the Netherlands. Other institutions have turned buyers of multi-family, further bidding up the prices. The interest is unprecedented. “There’s been a broader shift towards multi-family,” says Gemma Kendall, sector head at agents JLL. 

Today’s buyers hope to shed administrative burdens, and boost their margins, by using modern technology systems, such as Simplifyy, to take over several of the functions of their management companies. 

Poor management has been a bugbear of property rentals for many years giving the sector an awful reputation in the 1960s. 

Wealthy individuals keen to grow internationally include Ivar Tollefsen, worth $3.6 billion, whose Fredensborg investment group controls Heimstaden, a Swedish residential property company, which has invested $360 million in a development of 2,500 apartments in Poland. John Giverholt, chief executive of family office Ferd, is a director of both companies.

Michael Bickford, a keen polo player, runs Round Hill Capital which has invested in apartments on both sides of the Atlantic. Round Hill is an international investor which has invested in 110,000 residential units. It recently launched a US Residential Income and Growth Fund for investors interested in multi-family deals in the US Sunbelt.

Bob Faith’s Greystar Real Estate Partners, a $41 billion US residential specialist, recently raised $1 billion for a multi-family fund that intends to invest in Australian multi-family opportunities. It is said to be negotiating the purchase of London landlord Fizzy Living. 

Following its development of the Canary Wharf office complex in London, in 2004, Canada’s Reichmann International, led by the late Paul Reichmann’s son, Barry, continues to seek co-ownership opportunities with institutions and high net worth investors. It was among the first to spot the potential in specialist rented property in 1994 through purchases and sales involving retirement, nursing and student property. 

In a move which draws attention to the shortage of rented residential property in a buoyant market, sector veteran Sam Zell, said to be worth $5.5 billion, is investing $750 million in a partnership with luxury housebuilder Toll Brothers which intends to deploy an initial $1.9 billion in new apartments. The partnership intends to use 60% leverage.

Although there is a consensus that the suburbs will be a better bet, Private equity firm Blackstone has agreed to lend $260 million to Related Companies, a business founded by real estate billionaire Stephen Ross, worth $7.6 billion, who wants to restore an apartment block known as Truffles Tribeca. 

Blackstone is already a significant owner of multi-family property and buying more in Asia, taking advantage of the growing willingness of younger people to rent.

 

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