CBRE Global Investors closes third multifamily fund

The world’s largest real estate investment manager saw its latest apartment development vehicle oversubscribed by more than $100 million.

CBRE Global Investors has wrapped up fundraising on CBRE Wood Partners Development Fund 3 (Wood 3), the third offering in its multifamily development fund series. The vehicle attracted $304 million in equity commitments, exceeding its initial target of $200 million. 

The Los Angeles-based real estate investment management arm of commercial real estate services firm CBRE Group raised $105.6 million during the fund’s first close in August 2012, according to a filing with the US Securities and Exchange Commission. The vehicle, which is structured as a hybrid of a commingled fund and a club deal, attracted capital from six institutional investors in the US and Canada, some of which were limited partners in the prior two Wood funds. 

One such investor was the Teacher Retirement System (TRS) of Texas, which committed $100 million to Wood 3 in August 2012. TRS previously invested $75 million each in Wood 1 in December 2010 and Wood 2 in March 2011, according to a document from the pension system.

The Wood funds raise capital to invest in projects being developed by Wood Partners, an Atlanta-based multifamily development and operator. CBRE Global Investors acquired a majority stake in the company through CBRE Strategic Partners US Value 5 in 2008. Wood 1 collected $165 million in commitments at the end of 2010, while Wood 2 raised $155 million in mid-2011.

“We’re clearly further into the recovery in this sector than other property types,” said Vance Maddocks, president of CBRE Strategic Partners US, the firm’s US value-added investment platform, in an interview with PERE. He estimates that vacancy rates in the sector have dropped from 8.2 percent to 6 percent over the past couple of years, while rent growth is expected to slow after several years of strong appreciation. “A recovered, somewhat normalized market is the way we view multifamily in the US overall,” he said.

In the face of decelerating rent growth, “the overall trend would be that we’re more and more selective,” added Maddocks. He said a particular focus of Wood 3 would be on high-density, infill-type projects in the metropolitan areas of Los Angeles, San Francisco and Boston, in contrast to the suburban garden apartments that the firm developed through its earlier Wood funds.

“We see strong demand, driven by underlying demographics in those areas and renters’ desire to rent,” Maddocks said. “We don’t see supply issues like we see in some other markets, so our view on those markets is particularly positive.”

Wood 3 is expected to invest in projects with total development costs of $750 million, with specified commitments to nine properties totaling over 2,000 units in the three cities, as well as Denver, Long Island, Phoenix and Washington, DC. The vehicle currently is more than 50 percent invested in projects that include 8th and Hope, a 22-story high-rise multifamily development in downtown Los Angeles. 

CBRE Global Investors has been actively buying and selling apartment assets through both its Strategic Partners and Wood Partners funds. It owns about $1 billion in assets through Strategic Partners US Value 6 and $1.3 billion through the Wood funds. Over the past 18 months, the firm also has sold $1.2 billion of multifamily properties owned by Strategic Partners 5 and Wood 1. 

Whereas the Wood funds target development opportunities, the Strategic Partners’ multifamily investments are focused on existing assets that are 10 years to 15 years old, located in markets with strong tenant demand and can be acquired at a discount to replacement costs, with intention of fully upgrading the properties.