Company: Three Pillars Capital Group
Total amount: $300 million
Pipeline: $1 billion
Target: Value-add Class B and C communities and distressed assets
Investors: Family offices in the U.S. and Middle East and high-net-worth investors in the U.S.
Target markets: Texas, Oklahoma, Arizona, Florida, Georgia and the Carolinas
Last spring, Gautam Goyal, CEO of Houston-based Three Pillars Capital, began to see rising interest rates create problems in the multifamily transaction market. As 2022 became 2023, those problems have put some apartment owners at risk.
“The owners who have variable rate loans with interest rate caps that are expiring — especially if they do not have good operations — are going to be in big trouble,” Goyal told Multifamily Dive.
Over the past year, Goyal has been raising money in anticipation of possibly grabbing some of these distressed apartments from troubled owners. Three Pillars, which has a portfolio of more than 3,000 units, announced in late February that it secured a commitment of $300 million over the past 12 months to purchase value-add Class B and C communities and distressed assets.
The firm is targeting $1 billion in acquisitions in its current markets of Texas and Oklahoma. It is also eyeing expansion into Arizona, Florida, Georgia and the Carolinas.
Three Pillars received funding commitments from family offices in the U.S. and Middle East and high-net-worth investors in the U.S.
While investors get excited when the word “distressed” is mentioned, there are several ways to define distress, Goyal said.
“In this case, we're buying the property at a discount to what the seller paid,” he said. “They're going to lose a big portion of the equity that they put in when they bought it. The property is in need of a turnaround because the occupancy is lagging and income is lagging.”
Regardless of how a purchase is defined, Goyal said the key is to get a discount from early 2022 pricing. “Distressed is just a label,” Goyal said. “If we achieve our targeted IRR [internal rate of return], it doesn’t matter if it’s a distressed deal or not.”
Already, the company is under contract to buy a property that Goyal characterizes as “distressed,” and he thinks this won’t be the last.
“As time goes on, we’re going to see more of those become available,” Goyal said.
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