In the past few months, Los Angles-based JRK Property Holdings has been very busy. The company purchased five properties totaling more than 1,800 units in the Washington, D.C., Atlanta, and Dallas-Fort Worth areas for $160 million. It provided $50 million in equity from JRK Multifamily Platform, its second fund. And it financed the acquisitions with a mix of existing loan assumptions and newly originated loans by Fannie Mae and Freddie Mac.
Behind the scenes at each of these dealmaking tables is Bobby Lee, president of JRK’s investment division. Lee took some time to speak with Multifamily Executive Senior Editor Les Shaver about the deal.
MFE: Are the markets you bought in the ones you have been focused on?
LEE: We always try to stay pretty opportunistic being a private operator. We try to differentiate ourselves from the REITs who have identified certain markets, mainly on the coasts. So the first driver for the buys is that we wrapped up the fund raising for the JRK Multifamily Platform in March. Now, that we’re 100 percent focused on acquisitions as opposed to splitting our time between acquisitions and fundraising, it has opened things up for us a little bit.
The second piece is that this fund is geared toward Class A and B in primary and very high-tier secondary markets. We’ll go outside of that on an opportunistic basis, but when I look at it from an employment and population perspective, the Texas markets, a market like Atlanta, and D.C. fit right within our wheel house.
MFE: So is D.C. your primary target market?
LEE: D.C. is probably not a target market, but we had some pretty opportunistic deals there where we were buying things at pretty attractive yields and all-in returns in a market that I consider pretty core. Markets like Atlanta, Texas, central Florida, and Colorado are really core markets for JRK. Frankly, they generate more yield than coastal markets.
We’re going to be pretty opportunistic. If I found a pretty attractive risk/return deal in Southern California or New York, we would go after those markets. It all has to do with looking at an individual assets if we find certain market where we have a competitive advantage in.
MFE: What kind of sellers were did you buy from?
LEE: They were all institutional in nature and had some kind of partner involved in the deal. With the exception of one property, they’re all being sold by their original developer and equity partner. The interesting thing that we saw, was that our relationship was almost exclusively with equity partners.
Whether it was a big life insurance or a financial institution or quasi bank or other similar type organizations, we didn’t have the relationship with the guy that built the deal. We had the relationship with the equity. Often times, the equity was forcing the sale because they either need some redemptions in their insurance fund or they had a mandate to reduce the size of their balance sheet.
MFE: Are sellers also coming to you?
LEE: We’re starting to get to the point now where we’re starting to get some inbound calls. We have missed the deal on the brokerage side, but the equity guy will call and say, ‘I see you didn’t submit an offer. I know this market you look in. Why didn’t you take a look?’ While it’s not a last look, we’re certainly able to put our foot in the door on deals that we missed. It just becomes a lot easier when you’re doing repeat business with folks.
MFE: You’re on pace to buy $250 million this year and $500 million more next year. How difficult is it to deploy that capital?
LEE: It’s certainly competitive, but when you look at pricing you don’t feel it’s unwarranted given the rent increases that we’re seeing at properties where we're buying, and within our own portfolio. We’re starting to see 4%, 5%, 6%, even 7% rent increases and, in some cases, even higher than that when you go to infill locations.
MFE: How many units would you be adding?
LEE: We were at 42,000 units in the beginning of the year. Today we’ll be under 45,000. When we’re fully invested at the end of next year, it will put us in the 51,000 to 52,000 range. That assumes no sales. There may be some sales, but I don’t think it will move the needle that much.
MFE: How long is your hold time?
LEE: It’s generally a five- to 10-year investment horizon, but we can hold longer.
MFE: Do you see any new funds coming down the road?
LEE: If the opportunities still exist, we would hopefully build upon that and raise a larger fund probably by the end of next year if we continue on this path.
MFE: Is there a target you’d like to get to in size down the road?
LEE: We’re more concerned about opportunities than size. We’ve built the base infrastructure and we have a scalable business. We have a good group of core people on the property management and asset management side. Even if we grew our portfolio next year by 10,000 units, we could easily absorb that.
We have deals that we’ve owned for 15 or 20 years, which we will probably exit over the next three to five years. That gives us additional capacity. My guess is that we’ll continue to buy properties, and we’ll continue to sell some of our legacy properties. We’re not seeing the deal flow is so big that we’re reaching capacity.
Our view is that as long as we’re seeing good deals and we’re finding deals that meet our return parameters, we’ll continue to go after them.