Related Companies has acquired a portfolio of 21 multifamily properties on behalf of its Related Real Estate Recovery Fund from Phoenix-based real estate investment firm Pivotal Group for approximately $300 million. The New York-based developer plans to reposition the portfolio, which includes 3,128 apartment units, by implementing institutional-quality management practices and investing significant capital for upgrades.
“Our Real Estate Recovery Fund has once again identified properties with enormous potential and ideal matches for our skill set and fully integrated execution strategy,” commented Justin Metz, managing principal of Related Fund Management, in a statement.
Fourteen of the assets, totaling 1,751 units, are located in Midland, Texas, and six, totaling 1,225 units, are in nearby Odessa. The remaining community, comprised of 152 units, is in Longview, in eastern Texas. The properties in the portfolio were constructed between 1974 and 1983 and extensively renovated throughout 2012 and 2013.
According to a brochure on the assets published by broker CBRE, the portfolio is “poised for exceptional growth” as the Midland/Odessa market struggles with an extreme housing shortage fueled by an influx of workers to the oil and gas industries. According to a report from Reis, Midland/Odessa was the top performing multifamily market in the nation for rent growth in 2012, experiencing 22 percent annual rent inflation.
“With the exception of the past five years, the Midland/Odessa region experienced an extremely limited amount of new construction and capital investment since mid-1980s, creating a gap in the marketplace,” stated Metz. “We seek to be a premier provider of institutional-quality rental housing in the area to meet the growing demand.” He added that Related would continue to pursue multifamily rental properties in markets that benefit from job creation resulting from the recent surge of energy exploration and production.
Related is the latest firm to capitalize on the real estate investment opportunities presented by the booming US energy sector. In November 2012, Kohlberg Kravis Roberts purchased 164 acres in oil drilling hub Williston, North Dakota with joint venture partners Pfeffer Capital and CP Realty. Last spring, the private equity giant began developing a housing community on the parcel to accommodate the influx of new residents. Principal Real Estate Investors similarly is looking to profit from the shale drilling revolution with a two-tower office project in Houston’s Energy Corridor, currently under construction through development partner Trammel Crow.
The Related Real Estate Recovery Fund closed on $825 million in equity commitments in January 2012, exceeding its $750 million target. As the firm’s first opportunistic vehicle, the fund targets investments in for-sale residential, multifamily, office, retail and mixed-use projects in major US cities, including Boston, Chicago, Los Angeles, Miami, New York and San Francisco. The firm currently is in market with its follow-up effort, which again is looking to raise $750 million.