Expected for some time, Chicago-based Waterton Residential closed on its 11th discretionary real estate fund this month, clocking in with a $500 million fund that can be leveraged to $1.5 billion in multifamily buying power. While the fund will target properties in need of recapitalization, monies will also be deployed into fee-simple transactions and debt purchases secured by multifamily properties. In contrast to Waterton’s previous four funds, which featured the California State Teachers’ Retirement System as a singular 90 percent investor alongside Waterton equity, Venture Fund XI incorporates some 10 institutional investors. “The big difference in Fund XI is that we have multiple institutional investors, primarily three larger investors and the rest are other smaller pension plans,” says Waterton co-founder and managing partner David Schwartz. “There was quite a bit of demand for the fund, and we opened it up a little bit more, but still in the world of funds it is a relatively small group of investors.”

And in the world of Waterton funds the equity is still committed to value-add opportunities that include financial and physical distress as well as market-motivated, fee-simple transactions. “We are doing standard Waterton value-add to acquisitions where the previous owner has been cash constrained and unable to properly re-invest in the property,” says Schwartz, who points to carpets, appliances, and common areas as critical areas currently suffering from a lack of cap-ex infusions. “Non-investment in those and other areas creates a vicious cycle of rent and asset value deterioration. As an acquirer committed to re-investment, we like those situations if they are well located and fundamentally have good bones.”

According to Schwartz, Fund XI opportunities could also bring Waterton deeper into the New York market as well as bolstering the higher class asset mix of the firm’s portfolio. In January, the company announced the acquisition of the Addison, a 271-unit, two-building Class A rental community in Brooklyn, N.Y. “We think we’ll do more in New York as we are seeing similar stalled development opportunities,” Schwartz says. “I think we’ll also see traditional owners selling assets into what is a much stronger market, so we might also be buying less opportunistically from sellers who simply want certainty of close.”