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IEC makes rare decision to allow new investors into latest fund

The Los Altos, California-based firm, which exceeded the hard-cap on its fifth institutional vehicle, typically raises capital from existing LPs.

Interstate Equities Corporation, a value-add multifamily manager focused on the western US, has closed its third discretionary value-add fund on $445 million, exceeding its initial $400 million hard-cap.

The Los Altos, California-based manager raised the capital for IEC Institutional Fund V in just seven months, PERE has exclusively learned. The speed of the capital raise was aided by a 98 percent re-up rate from investors from Institutional Fund IV.

Five new investors committed to the fund, though even this small addition of capital from new investors was unusual for the firm. Fund IV only had one new investor, while the remaining capital came from existing limited partners, co-president and chief operating officer Julia Boyd Corso said.

“This is the first time in our fund experience that we’ve really opened our doors to new investment,” she said. The new commitments came from investors that had long-term relationships with the firm but were not ready to commit until Fund V.

The majority of the capital came from foundations and endowments, said Marshall Boyd, co-president and chief investment officer at IEC, whose prior investors include the Rogers Family Foundation, per PERE data. Additional commitments came from a corporate pension, a family office, as well as high-net-worth clients, he added.

The firm is no stranger to quick fundraises. IEC closed its last fund, IEC Institutional Fund IV, in just three months, raising $300 million in 2018. The firm closed its first commingled fund, Institutional Fund III, in 12 months. The firm has never used a placement agent and has instead opted for in-house capital raisers, which helps the firm to amass equity more quickly. Fundraising duties previously had been handled by Peter Casey, who left the firm in 2019 to join Sack Properties, another Western US multifamily specialist. Boyd has since assumed his responsibilities.

IEC will continue to target mid-teen net returns and net equity multiples between 1.5x and 1.7x for the fund series. PERE understands that the firm has continued to outperform those targets.

The firm’s strategy is focused on acquiring and repositioning workforce housing, primarily in California. The firm is also exploring opportunities in Washington, a market that was not covered in prior vehicles. In all, IEC targets 20 US cities for investment, including suburbs in the Bay Area and Greater Los Angeles, as well as Orange County, San Diego and Seattle. Most recently, the firm bought a 400-unit property in Orange County from Blackstone-owned Resource REIT in February. The firm has approval from investors to pursue development, though it has not done so in previous vehicles, Marshall Boyd said.

IEC has historically attracted most of its fund capital from endowments and foundations because of what they perceive as an alignment of interest. Many of the investors are foundations for charitable causes, and have found the firm’s focus on workforce housing to be complementary to their own social objectives, Marshall Boyd said.

The firm approaches every decision it makes through a return on cost lens. Such decisions include software implementation, hiring, ESG initiatives and value-add investments in the firm’s funds, Julia Boyd Corso explained.