Electra America has big plans this year. It launched its 2018 Multifamily Fund with a target of $300 million and expects to complete $1.5 billion in multifamily acquisitions in 2018.
Its 2017 Multifamily Fund, with $212 million from foreign institutions and high–net worth investors, closed in February. The fund is dedicated to acquiring and repositioning value-add multifamily assets in Sun Belt cities and comprises more than 7,000 apartment units in four states: Georgia, Florida, North Carolina, and Texas.
West Palm Beach, Fla.–based Electra America is the debt and equity partner to American Landmark, which operates over 23,000 apartment units across the U.S. Southeast.
Multifamily Executive recently spoke with Joseph Lubeck, CEO of Electra America and American Landmark, about his company’s vision and the state of the value-add business in 2018.
MFE: Has it gotten harder to get financing as this cycle has progressed? Is it harder to find deals in general?
Lubeck: Yes to both. There are more players than ever in the value-add multifamily space, which has pushed pricing. It’s increasingly difficult to find deals that work financially, but our long-standing track record gives us a competitive edge. We have access to a lot of off-market pipeline. It requires creativity in finding ancillary income opportunities, as well as creative financing structures. Our business model isn't about cap-rate compression; it’s about NOI growth. We also have multiple strategic institutional partners, private investors, and funds, so once we dissect a deal, we can typically place it with an incumbent equity source, a repeat partner, or our own fund.
MFE: What makes Sun Belt cities attractive?
Lubeck: “Jobs, jobs, jobs” is our mantra, so we want to be in the markets where the most job growth is happening—and that’s in cities like Charlotte, N.C.; Atlanta; Orlando, Fla.; Houston; and San Antonio. There are a lot of young professionals, working families, and retirees moving there who want affordable places to live in a comfortable suburban setting, and who don’t want to be anchored down by a mortgage. What they do want is an amenity-rich, child- and pet-friendly setting, so our communities all have really great fitness centers, clubhouses, pools, dog parks. It’s also easier to maintain a property located in the warmer parts of the country.
MFE: Are you targeting similar cities and types of properties with the 2018 Multifamily Fund?
Lubeck: Yes, still value-add multifamily communities in fast-growing Sun Belt cities. Last year, we were probably one of the largest buyers in the country, with approximately $1.1 billion in multifamily asset acquisitions, and we plan to add another $1.5 billion or so in assets to our portfolio this year, bringing us up to about 28,000 apartment units in total.
MFE: Has your strategy evolved from last cycle to this cycle? If so, how?
Lubeck: When I started in 1995, there weren’t a lot of people doing what we do—we were truly pioneers in multifamily repositioning. Now, the field is far more competitive, and technology, amenities, and finishes keep improving, raising expectations even further. But having done this a few times before, we have very specific criteria, and we’re selective. We don’t get involved in bidding; as I mentioned earlier, most of our product is acquired off-market. But the basic model is still the same: Buy good product in good neighborhoods, improve it, and provide stellar customer service. That’s been our success story.
MFE: How has the Electra America brand been able to expand so quickly?
Lubeck: The key to being able to do large numbers of acquisitions is that we have a great operating team, many of whom have been with me for many years. Our systems and our people allow us to be very scalable. Another advantage is our reputation for being able to move quickly and close with a significant amount of cash. Owners and brokers know this, so we get approached directly for a lot of transactions. We also have the financial strength to execute portfolio buys—like we did recently in both Jacksonville and Atlanta.
MFE: Electra America anticipates “closing about $1.5 billion in multifamily assets this year.” How did you reach $1.5 billion as a target?
Lubeck: We set targets based on the amount of capital that needs to be placed. We have a lot of partners who want to reinvest with us on a consistent basis because we have always delivered steady and favorable returns. In addition to that, we have our own proprietary and internal funds. So that’s how we determine our target, although it’s important to point out that every deal has to withstand scrutiny and meet very rigorous criteria.
MFE: How would you assess the current value-add market?
Lubeck: The market has gotten very competitive, but we still think there are opportunities out there. As long as the jobs continue to grow, then there will be opportunities in the value-add sector. Obviously, interest rates have gone up and may go up more, but we expected that and budgeted for it, so it doesn’t impact us tremendously.
MFE: What’s the company’s strategy for a property once it’s acquired?
Lubeck: Once we find a property that meets all of our criteria—well-located, nicely built, in a high–job growth market—we’ll initiate a full-scale renovation and repositioning. That includes changing the name, updating the landscaping, upgrading the clubhouse, and doing interior upgrades on all the units. We add new flooring, new kitchen appliances, and sometimes even washers and dryers. Then, we’ll really expand the amenity package to meet the expectations of today’s renters. Most of our communities have 24-hour, state-of-the-art fitness centers; Wi-Fi cafés; dog parks; package delivery systems; and tennis or volleyball courts. Lastly, we put a great management team on-site to deliver exceptional customer service, which is crucial if you want to attract and retain residents.
