On May 6, ECI Group and ApexOne Investment Partners launched a strategic joint venture, ApexOne-ECI Multifamily Fund VI LP, according to a press release.
The ECI-ApexOne venture joins a handful of other value-add vehicles recently launched in the multifamily sector. The timing of these funds doesn’t appear to be a coincidence, as investors are beginning to see strong buying opportunities.
Ernest Johnson, partner and executive managing director of ApexOne, said that his firm believes the U.S. apartment market is in a “cyclical adjustment” following the rapid asset-value appreciation through early 2022.
“Our acquisition teams are seeing a significant uptick of both marketed and off-market deals throughout our targeted markets,” Johnson told Multifamily Dive in emailed comments. “Many more than a year ago.”
ECI CEO and Chief Operating Officer Seth Greenberg said that sponsors, investors and lenders have been waiting for the market to improve. But now sentiment is changing.
“It appears the realization that current market conditions are the new normal is beginning to take hold and people are acting accordingly,” Greenberg told Multifamily Dive in emailed comments.
The fund, which will seek total equity capitalization of $500 million, aims to acquire, invest in, strategically redevelop and renovate, lease and manage institutional-quality multifamily assets across the Sun Belt, the Midwest and the Mountain West, per the release.
“No single part of the country is immune from the stress we see in the market,” Johnson said. The Sun Belt and Mountain West regions create opportunities “due to past overbuilding,” he said, while the Midwest “creates opportunities from delayed physical improvements and the timing of debt maturities.”
Big commitments
ECI and ApexOne, the fund's co-general partners, have committed to co-invest more than $100 million of the fund's $500 million total equity capitalization alongside committed investor equity capital, per the release. Collectively, the firms have acquired or developed approximately 50,000 units and invested over $7 billion across more than 160 multifamily communities in the Sun Belt, Southwest and Midwest regions.
ECI Group’s capital commitment to the fund is in partnership with Almanac Realty Investors, a business unit of a business unit of Neuberger Berman. The value-add fund will target existing properties rather than ground-up developments, with an emphasis on both newer-vintage and traditional multifamily assets, including workforce housing communities.
Johnson says 35% to 40% of the opportunities available are traditional value-add properties in need of light physical upgrades. “The balance are opportunities created by a stressed capital stack,” he said. “All of the properties will benefit from the improved operations that ECI can generate through their AI-driven management and leasing systems.”
For Greenberg, items that make a unit more livable, such as better light, more modern kitchens and flooring, as well as other modernizing amenity packages, present opportunities to improve both asset value and a resident's living experience. “We also believe our focus on customer service will help improve the performance of the properties we acquire and manage,” he said.
Value-add fund growth
The value-add fund space has gotten crowded over the last year, as a number of firms across the industry have raised investment vehicles targeting properties in need of upgrades, whether structural or operational.
Last month, Hilltop Residential announced the final close of Hilltop Growth Fund VI, with $288 million in total commitments, marking the firm's largest fundraise to date and giving it $1.5 billion to $2 billion in buying power.
Also, in April, Carmel Partners announced the final close of its Fund 9 at $1.35 billion. The San Francisco-based real estate investment firm has acquired nine assets with the value-add vehicle.
In January, American Landmark Apartments completed the first close of American Landmark Fund V, raising approximately $400 million in equity commitments, with a target of approximately $1 billion in total commitments. The vehicle, American Landmark’s fifth closed-end value-add real estate fund, will focus on the acquisition, renovation and management of multifamily properties across the U.S. Sun Belt.
“Through both the value-added strategy and fine-tuning of operations, we can grow NOI and provide appropriate returns to investors,” Joe Lubeck, CEO of American Landmark, previously told Multifamily Dive.
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