Florida-headquartered investment and development firm Participant Capital Advisors plans to launch a US-focused diversified real estate development fund targeted toward European investors as it aims to grow its international fundraising capability.
The open-ended fund, whose name has not been publicly disclosed, will invest in development projects across a range of asset classes within the Sunbelt region. It will have a fundraising target between €300 million to €500 million, which it aims to reach over a three- to five-year time period.
The new fund marks the first time the firm is targeting European investors with a capital raise. “We’re very excited about our planned expansion into Europe,” president Bernie Wasserman told PERE. “We’re launching the platform to access European investors. Thus far we have had interest from foreign investors, especially those from Latin America, who have their sights set on the Miami market.”
Wasserman could not confirm the anticipated launch date for the fund in light of market uncertainty stemming from the Russia-Ukraine conflict. “For the moment, our plans are on hold as we await what we hope will be a quick resolution to the war in Ukraine,” said Wasserman. “How this resolves itself will dictate how quickly we can move forward on this initiative.”
Further fund details include a Luxembourg RAIF structure and no maturity date for the fund.
Participant Capital’s strategy is to invest in ground-up development real estate projects in the Sunbelt states and territories of the US, such as Puerto Rico, where migration is occurring. The fund allocates to mixed-use, multifamily, hospitality and large master-planned development projects that include these property types.
The firm also has plans to launch a Brazilian feeder fund in the near future, which will create an additional pool of capital for the vehicle.
Focus on Florida
Participant’s new fund will invest in development projects with a broad scope in terms of sector, predominantly within the Sunbelt markets.
It has a number of projects in the pipeline in Florida including a master urban development project in the city of Aventura – encompassing a range of mixed-use, residential, hospitality and retail properties. The firm has a similar project underway in Puerto Rico.
According to Wasserman, Florida is the hottest market in the United States in terms of investor demand.
“When it comes to Florida, we have been developing here for years,” he said. “The high demand and lack of supply in Florida, when combined with our proven development expertise, makes us a compelling value proposition to investors.” Orlando and Tampa in particular “are seeing tremendous amounts of growth in demand,” he added.
Appetite for development
The firm believes there is a growing appetite for investment in development due to the aforementioned supply-demand imbalances, as well as higher return potential.
However, Wasserman said Participant was actively sourcing deals to meet that demand. “What excites me is all the activity,” he said. “Whereas another firm might struggle to find opportunity, we have a large and growing development pipeline of more than $2.5 billion dollars.”
Another consideration is the rising rate environment. “This is something we have considered for some time,” said Wasserman. “We have had a shrinking cap rate market for the last several years, primarily because of an accommodative interest rate policy, high demand growth and muted supply – the latter of which was exacerbated by the pandemic.
“However, for the next two to five years, depending on the growth forecast you read, the anticipated level of interest rate increases is expected to be moderate.”
The firm continues to factor in rising cap rates to its investment models. It expects the impact will be largely offset by strong valuation and rental rate growth. “As a result, we still see a significant opportunity in real estate development where the margins remain healthy.”
Other funds in the works
Participant plans to expand in Florida’s residential market and is in the initial planning stages of a multifamily-focused fund, which will pursue ground-up development opportunities. The firm is aiming to bring the fund to market later this year.
He pointed out that in high-growth markets like Florida, such factors are less of a concern for multifamily because of more sustainable investment drivers in those geographies, as well as higher profit potential.
For example, the pandemic has accelerated migration to Florida by those seeking a warmer climate, higher quality of life and lower taxation. This is creating an increased need for housing and mixed-use properties that provide a live-work-play environment for recent transplants.
However, supply has not kept pace with demand because the pandemic slowed new development, said Wasserman. “The lag in supply has resulted in dramatic increases in valuations and rents, which widened development margins. Despite the impact of rising material costs and supply chain disruptions, development margins continue to remain attractive to investors.”