Boston Capital Real Estate Partners held a first close on its second value-add US multifamily fund, securing $133 million in commitments, all from European institutions.
The close speaks to international appetite for affordable rental properties outside major US gateway cities – a trend that has been accelerated during the covid-19 pandemic.
Boston Capital hopes to raise between $300 million and $350 million for the vehicle by the end of next year, PERE has learned. Boston Capital Income and Value US Apartment Fund II received re-ups from four of the five investors from the previous vehicle in the series, and six total commitments from pensions, foundations, financial services groups and family offices.
The fund is domiciled in Luxembourg to appeal to non-US investors, president and managing director Mark Dunne told PERE. With larger US institutions consolidating manager relationships and favoring more direct structures domestically, the firm has focused on Europe, where investors are keen to use funds to invest outside their home region. Before launching its discretionary commingled funds business in 2018, Boston Capital took a similar tack with its separate accounts platform, Dunne said: “We focused on what we know best and that’s been a good strategy.”
Capra Global Partners is advising Boston Capital on the fundraise.
BCIV II focuses on market-rate apartments, primarily low-rise, class B properties in suburban and non-gateway cities, such as Atlanta, Dallas, Denver, Phoenix, Houston and a few in North Carolina. It aims to increase rents through repositioning and capital improvements, while targeting renters making between 80 and 120 percent of area median income.
Recent trends have boosted this strategy, Dunne said, as renters have taken advantage of work-from-home allowances to move away from city centers in search of more space, less density and lower costs of living.
“The move from density to lower density is pretty pronounced right now,” he said. “Our focus on suburban middle-income, B-class properties is getting a lot of uplift right now, single-family rental is getting a lot of uplift and more people are buying houses. In our strategy of re-positioning and renovating lower density B-class middle-income assets, the trends have been favorable.”
US multifamily has been an attractive sector during the pandemic because its underlying market drivers – the lack of supply, primarily – remain unchanged. So far this month, Boston Capital has collected 97 percent of rents, even after many federal stimulus programs ended in August. Half of tenants with outstanding rents are on some form of repayment program, Dunne said.
The property type’s favorability also set Boston Capital up for a lucrative exit last week when it sold a $7 billion portfolio of subsidized low-income housing to Tokyo-based ORIX Corp. Dunne cited rising competition in the low-income housing space and ownership changes at the top of the company as motivations behind the sale.
“The company is really just going to focus on a smaller legacy portfolio of affordable assets, our business and one other debt business going forward,” he said. “It’s a great position for us and we’re really excited about it.”