A half-finished strategy was sufficient for Greystar’s $3.6bn exit

It took 30 transactions for Greystar to deploy its ninth US value-add fund and just one to exit it. It is a sale that demonstrates the unprecedented institutional appetite for American residential strategies, particularly apartments with discernable upside.

The residential specialist sold the fund’s entire portfolio for $3.6 billion to Ivanhoé Cambridge in a deal revealed by PERE this week. The Canadian pension investor emerged victorious from a crowded field of would-be buyers, weathering at least three rounds of bidding to obtain its prize.

The result of that haggling was one of the biggest real estate portfolio sales of the year thus far and the largest apartment portfolio deal in recent memory.

Most remarkable is that Greystar did not even need to finish its business plan for Greystar Equity Partners IX for the assets to achieve such a rich exit.

The firm renovated about half the 10,000 units in the portfolio before putting it on the sales block. In a market starved for both returns and exposure to housing strategies, that decision proved savvy.

Typically, when a value-add portfolio is sold toward the end of a fund’s life – particularly when it trades for a premium – the buying party is using core capital and looking for steady income from stabilized assets. In this case, Ivanhoé Cambridge paid up for assets and a clear path toward higher returns. Such a transaction is traditionally more regular between two businesses each known for value-generating strategies.

The deal also reflects how transaction markets are in full swing once again with investors looking to make up for lost time after sitting on the sidelines for most of 2020 and the beginning of 2021, even if it means they inherit the value-adding work in the process.

Approximately $177 billion of real estate transactions took place last quarter, according to brokerage CBRE, a 151 percent increase from the year prior. Multifamily properties drove that resurgence, accounting for more than 40 percent of the market. This flurry of activity has driven prices for apartments up – by 16.3 percent year-over-year, per transactions data provider Real Capital Analytics – and capitalization rates down – by 39 basis points, according to CBRE. The convergence of these factors has evidently worked to Greystar’s advantage.

To Greystar’s credit, the firm turned GEP IX’s $1.25 billion of equity into a nationwide portfolio that was overweight to the top growth markets in the country, particularly in the Sunbelt and the suburbs of gateway cities. In other words, significant market share was on the table here. The manager used its network to purchase half the assets in the fund off-market. And it put together a plan of action that – at least in its early stages – has worked well enough to attract the likes of Ivanhoé Cambridge and several other interested parties besides.

This was also not the first time Greystar exited a fund in one fell swoop. It did so before with GEP VII, which it sold to Blackstone in 2015 for $2 billion. But that was a much smaller transaction, and the buyer was the industry’s biggest manager, known for putting scale capital behind convictions and for adding value as well. Operational expertise for a transaction like this is a must. Ivanhoé Cambridge is among a small cohort of institutional investors with the acumen to be hands-on with a scalable portfolio. The real estate entity of public pension manager Caisse de dépôt et placement du Québec has a bench extending beyond 1,000 staff.

With its $3.6 billion portfolio sale to Ivanhoé Cambridge, Greystar has demonstrated that the right properties and strategy, even if only halfway complete, can command competitive bidding, particularly from groups with the know-how to finish the job.