TruAmerica announced it made a $27 million preferred equity investment in the ground-up development of a 251-unit apartment community in San Carlos, California, according to a press release shared with Multifamily Dive on August 10.

The investment came almost a year and a half after the Los Angeles-based Top 50 apartment owner brought Ash Baraghoush aboard as senior managing director to lead the structured finance operation. Since then, the team has grown institutional capital partnerships to support the strategy's expansion before making its first structured finance investment in the San Carlos deal, per the release. 

The new offering complements TruAmerica’s acquisition, development and affordable housing strategies, Baraghoush told Multifamily Dive. The firm would like to build a private credit portfolio of roughly $500 million in investments over the next couple of years.

President and CEO Bob Hart and Chief Investment Officer Noah Hochman want to grow TruAmerica from a successful owner-operator into more of a residential investment management company, according to Baraghoush. “As a result, multiple business verticals were created thereafter,” he said

Baraghoush, along with Hart and Hochman, has spent much of the last year meeting with investors to raise capital in what is a difficult environment. But the structured finance group is ready to deploy credit capital through preferred equity, mezzanine debt and stretch senior financing to apartment owners and developers.

“We've been really cultivating and growing the pipeline since what I'll call Q1 of this year,” Baraghoush said. “And the pipeline was really robust.”

San Carlos construction

With TruAmerica’s capital commitment, SummerHill Apartment Communities will immediately begin construction on a six-story, 251-unit property with 213 market-rate apartments and 38 affordable units in the San Francisco metro area. 

“Myself, Noah, and Bob have really deep relationships with those folks,” Baraghoush said. “They are a top-tier developer in the Bay Area — a well-capitalized group.”

When SHAC pivoted from raising joint venture equity to construction preferred equity, it reached out to TruAmerica, according to Baraghoush. 

The deal has “A-plus sponsorship, a fantastic microlocation in San Carlos, California, drafting off of a very, very strong market in the Greater Bay Area by virtue of the AI boom and return to office,” Baraghoush said. 

In the process, the deal hit “all three legs of the stool” for TruAmerica: sponsorship, location and overall risk-adjusted return, according to Baraghoush. 

The region surrounding San Carlos has seen double-digit year-over-year rent growth, and the submarket has occupancy above 97%, according to the release.

“One way we won the business is that we pushed the leverage a little bit higher in the capital stack because we like the sponsor, we like the market and we like the story in the Bay Area,” Baraghoush said. 

The private credit trend among owners

With the investment in San Carlos, TruAmerica becomes the latest large ownership group to provide capital for an apartment development sponsored by another firm. Even smaller private firms, like Forum Investment Group, have entered the fray.

“Owner-operators want to continue to gain more access to investment opportunities,” Baraghoush said. “They view it, especially in today's market, as a strong risk-adjusted return for their potential capital investors.”

Offering preferred equity, for instance, can also benefit lending and investor relationships. If a project or property goes sideways, an owner-operator that has provided capital can step in and right the ship before the property ends up with the bank.

“There's another layer [in the debt stack] of operating experience to protect them [a lender] from having to take over an asset themselves,” Hochman told Multifamily Dive.

Public REITs, such as Essex Property Trust and UDR, also have a track record of injecting capital in development projects with other firms. In some cases, those companies have had to step in to take control of properties where they made preferred equity investments.

In January 2024, UDR assumed the ownership interest of a 173-unit lease-up property in Oakland, California, built by developer Mill Creek Residential. Also in 2024, Essex Property Trust assumed the common equity interest in a 75-unit property in Sunnyvale, California. 

Taking control of the properties isn’t the goal, Baraghoush said. In fact, it's something TruAmerica wants to avoid.

“The worst thing that I could do is report back to my investor base that we had to remove a partner, and this is now part of our portfolio,” Baraghoush said. “The relationship with these investors — the importance of this business vertical to the company — is much bigger than doing a couple of bad deals.”

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