Multifamily firms Sterling America and Waterton Associates have joined other real estate owners in amassing cash to take advantage of opportunistic buys in the coming months.
New York City-based Sterling America is currently seeking investors to partner up on a $500 million fund intended to take advantage of financially distressed real estate assets, particularly in the commercial and multifamily sectors. While company president Michael Katz isn't sure what effect the economy is ultimately going to have on those asset classes, a 40-year history in real estate tells him that a lot of deals aren't going to survive current economic crises.
"All segments are going to be affected, from retail to residential to commercial," Katz says. "We're very excited about the ability to buy some assets. There will be a lot of good opportunities moving forward to deal at appropriate cash flow levels and loan-to-value levels. The major problem is financing."
To that end, Sterling is adopting a "cash is king" mentality and intends to put 30 percent of its own equity into the acquisition fund?its first since the company's $600 million SAP V fund closed in January 2007. "We think that the acquisition market for people that have available cash will be very lucrative," Katz says. "We're excited about assets that we couldn't buy a year two ago."
Sterling's 2008 acquisition flow has been steady: The company acquired an 832-unit Phoenix apartment community in April; a 532-unit rental complex in Tampa in July; and the 440-unit Hunt Club apartments in Michigan in September from multifamily REIT AIMCO.
Sterling's maneuvering tactics are not unique. Chicago-based Waterton Associates just closed its 10th acquisition fund, a $225 million joint venture with the California State Teachers Retirement System (CalSTRS). "We are not rushing out tomorrow to begin using the fund. We'll spend it wisely," says Waterton COO Greg Lozinak. "Our tendency will be to keep that powder dry, but that does not mean we are not looking. We believe there are going to be opportunities for acquisitions?we just haven't found any gems yet."
Waterton's last gem of note was the May 2007 acquisition of Chicago's 2,346-unit Presidential Towers apartment complex, which also features 100,000 square feet of commercial/retail space.
Katz says multifamily owners need to be more flexible in dealing with the foreclosed as a way of maximizing occupancy and rent fundamentals. "If lease applicants have a job and a good background and can afford it, there should be no negative stigma that goes with having a foreclosure," he says.
As for the prospects of a $500 million real estate equity raise in the current economic climate, Katz likewise remains flexible. "We think now is the time that investors want to be with people who have been through the process before and make good buys," he says. "We'll put 30 percent of our own money in. If I don't get any investors, I still have a $150 million to 170 million fund."