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QuadReal places $400m bet on multifamily amid covid-19 crisis – Exclusive

The Canadian pension investment corporation has closed on a $421m development joint venture with a Florida-based apartment developer and operator.

The coronavirus pandemic has not spoiled QuadReal’s appetite for multifamily properties.

Earlier this month, the real estate arm of the British Columbia Investment Management Corporation committed $400 million to a joint venture with Mill Creek Residential, a Florida-based developer and operator, PERE has learned.

The total equity size of the joint venture, targeting investments in ground-up developments in the US, is understood to be $421 million, with Mill Creek Residential putting in the remaining $21 million.

The joint venture also recently closed on its first land acquisition, a plot in suburban Houston where the groups aim to develop 429 units of Class A apartments.

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Although the partnership was in the works since last year, the CA$37.6 billion ($26.6 billion, €24.5 billion) investor decided to go ahead as planned and finalize the transaction this month despite covid-19-induced market uncertainty. Tim Works, QuadReal’s managing director for the Americas, told PERE the closure of the deal speaks to the company’s confidence in Mill Creek.

The vehicle has a three-year investment window. Works said new acquisitions have been put on pause until the market shows signs of stability. However, he also added that the virus-driven dislocation could lead to an accelerated rate of deployment over time.

Prior to the joint venture, QuadReal had a portfolio of 50,000 apartments either completed or under construction. Jonathan Dubois-Phillips, the QuadReal’s president of international real estate, said the company still has strong convictions about the property type that have not be deterred by the pandemic, though he noted the economic conditions have raised the stakes on new development.

“The QuadReal team takes a long-term view on its investments without trying to ‘time a cycle,’” he told PERE. “That said, we’re highly selective where and with whom we invest and evaluate opportunities on a risk-adjusted basis. The bar is high today. We will only develop when we can do so for an attractive premium to acquisitions, and vice-versa.”

William MacDonald, chief executive of Mill Creek, told PERE his firm has a $5 billion deal pipeline throughout the US. These are development and redevelopment sites in various stages of entitlement and design, but which have not yet been closed. Once the market stabilizes, QuadReal will have its pick of acquisitions from that set of properties as well as additional properties that are added in the months ahead. “Since this crisis started, we have not added any more deals to our pipeline but we are looking, we haven’t stopped,” he said. “It is hard to tell when things will bottom out and start getting better, so you need to be in the market all the time.”

MacDonald said his firm will acquire between eight and 11 properties through the joint venture, with an average cost of $100 million per asset and a loan to value between 60 and 65 percent. He expects the market-rate multifamily sector to recover quicker than other property types, such as retail, office and niche sectors: “Multifamily will be positioned well compared to other asset classes,” he said. “Prior to covid-19, there was more demand than supply around the country and the markets were very healthy. We expect there to be an adjustment period, but in the medium- and long-term we will be fine.”

New York-based advisory firm Hodes Weill & Associates acted as financial adviser and global placement agent for Mill Creek in the formation of the joint venture with QuadReal.