Asset manager Investcorp had hoped to add to its collection of US multifamily properties earlier this year. But when it went to market this summer, it found that buying opportunities were few and far between.
So, instead, the firm opted to sell, managing director and co-head of North American real estate Michael O’Brien told PERE, a decision that led to a $900 million sale of eight class B multifamily assets in Arizona, California, Florida and New York, beating its target pricing.
“We recognized on the buy side that there were very few available properties for sale on the market, which led us to take our portfolio to market in July,” O’Brien said. “There was a lack of supply of new product at that point, which we believe led us to achieve exceptional pricing on this portfolio.”
O’Brien said the portfolio was sold to multiple buyers who emerged from a crowded bidder pool that included top private equity real estate managers, institutional investors and syndicates of high-net-worth individuals.
The underlying properties were garden- and townhouse-style apartments in inner ring suburbs next to major cities, property types and locations that have risen in popularity during the pandemic as urban renters flee city centers for more spacious alternatives. Although lower cost states such as Arizona and Florida have been more attractive in recent years – and even more so since covid-19 arrived in the US – O’Brien said demand was equally strong across all locations due to the lack of market-wide supply.
The assets were acquired in 2016 and 2017, O’Brien told PERE, adding that per-unit revenue throughout the portfolio was increased by roughly 20 percent during the life of the investment through physical improvements and leasing. “The class B multifamily space has proved extremely resilient during the pandemic,” he said. “Our occupancy is mid to high 90 percent across our portfolio, collections are not far off where they’ve been historically, and we’ve gotten smarter during the pandemic in terms of operating remotely.”
Investcorp was founded in Bahrain as a platform for connecting Persian Gulf investors with global private market opportunities. The firm’s real estate team is based in New York and it has diversified its investor base to include institutions outside the Middle East.
For the past five years, the firm has focused exclusively on multifamily and industrial assets, O’Brien said, adding that it plans to remain active within these property types moving forward despite the continued lack of available acquisition opportunities. Investcorp does not intend to be a net buyer or seller but will let the market dictate its activity. “We will continue to buy with conviction in these two asset classes,” he said.
Elsewhere in the Middle East, institutional investors have been more active on the sell side, according to the data firm Real Capital Analytics, though overall activity has been muted this year. Investors from the region sold $371 million of US real estate during the third quarter of 2020 compared to $258 million of purchases, according to an upcoming RCA report called “The US Cross-Border Compendium.” During the same period last year, dispositions outpaced acquisitions $2.3 billion to $1 billion.