Residential specialist joins forces with QuadReal and PCCP for roughly $1.2 billion capital raise

Mill Creek, a Boca Raton, Florida-based manager has raised its first fund and expanded its SMA platform.

Mill Creek Residential has raised almost $1.2 billion in capital to invest in the residential sector, including its debut fund and new or expanded separately managed accounts with Los Angeles-based PCCP, Vancouver-based QuadReal and other investors.

QuadReal, the Vancouver-based real estate investment arm of British Columbia Investment Management Board, has committed $500 million to an SMA focused on multifamily development. The commitment is a follow-on from an initial commitment of $421 million to Mill Creek for the same strategy.

PCCP and an undisclosed investor have each committed $263.2 million to two SMAs focused on single-family rental development. This is the first time Mill Creek worked with PCCP, though the firm has worked with some of PCCP’s investors, William MacDonald, chairman, chief executive and president of Mill Creek, told PERE. The undisclosed investor has been a partner in one-off deals with Mill Creek before, he added.

William MacDonald in front of window
“We decided to raise a commingled fund so we could compete with the Blackstones on timing,” William MacDonald said.

The Boca Raton, Florida-based manager, has also raised $156 million for its inaugural fund, Mill Creek Multifamily Value-Add Fund. The fund will focus on value-add multifamily acquisitions on behalf of an entirely institutional capital base. Around half of the capital in the fund was raised from investors new to Mill Creek.

Mill Creek declined to comment on performance targets for any of the vehicles. However, value-add funds typically target between 14-16 percent net IRRs net of fees. The firm employed Hodes Weill as its placement agent for all the vehicles, marking the first time Mill Creek has worked with the New York-based advisory.

All of the vehicles will focus on investments in their specific sectors in Mill Creek’s 29 target US markets. Some of the key markets for the firm include Atlanta, Austin, Charlotte, Dallas, Denver, Fort Worth, Nashville, Phoenix, Raleigh and Seattle.

The overarching theme driving the formation of the SMAs is riding out some of the market dislocation. The high interest rate environment has made acquisitions difficult to execute while structurally, there is a significant shortage of housing in the US. The confluence of factors created a demand for development.

“Part of the driver for development SMAs was the pricing and the opportunities on the acquisition side. It was just a lot harder for [investors] to get their money invested,” MacDonald said. “You had a lot of [acquisition deals] that had going in cap rates that were in the 3 to mid-3 percent range, versus developments that were, at the time, mid-5 percent plus. Once investors got comfortable with the risk on the development opportunities you started seeing more people want to participate in that space.”

Mill Creek has already closed on a handful of deals in the value-add acquisition fund but will have to wait a bit for “the fog to clear” before investing in additional opportunities, MacDonald said. The reason for going to market with a fund was to help with speed of execution in deals. Having discretionary capital available is vital in acquisitions.

“We decided to raise a commingled fund so we could compete with the Blackstone’s, if you will, on timing,” MacDonald said. “If you can’t compete on timing, sometimes even if your price may be a little better, you’re going to lose out.”

Mill Creek also will be back out in the fundraising market later this year, MacDonald said. The strategic plan for the business has been to raise another $2 billion by the end of 2024, focused again on similar strategies. The firm had planned to be back in the market already this year but has been delayed due to the market conditions.

“We pushed out the date of some of these as far as when we’re really going to kick them off,” MacDonald said. “But we’re not pushing out the end date when we want to complete the equity raise.”