After launching in 2013, Los Angeles-based TruAmerica Multifamily purchased its first East Coast acquisition in April 2016 — a three-asset portfolio in suburban Baltimore. A few months later, Matt Ferrari, who has previously worked for Archstone and Avalon Bay, was hired as the Eastern U.S. director of acquisitions.
Since the first suburban Baltimore acquisition, which was the driving factor behind launching an East Coast division based in Arlington, Va., TruAmerica has purchased another six properties near Baltimore and seven more in Florida, including its latest earlier this month: a 368-unit community north of Orlando in Winter Springs, Fla., acquired for $50 million.
Ferrari, who was promoted to managing director in charge of East Coast business operations last December, has gotten some company on the East Coast with the hiring of Doug Kelley, senior director of asset management; Chris Frank, director of asset management; and Ethan Pompey, director of capital improvements.
The firm now owns more than 5,100 units on the East Coast, with seven properties and 2,879 units in Florida and nine properties and 2,478 units in Maryland.
TruAmerica, Ferrari recently explained from his Arlington office, targets garden-style and mid-rise communities built mostly in the 1980s, 1990s, and early 2000s that are in “first- and second-ring suburbs around major metros.” It then implements its value-add program where it upgrades the community and charges higher rents.
The Winter Springs community, Astor Park, was built over two phases between 1987 and 1999 and features a mix of one-, two-, and three-bedroom units. The vertically-integrated firm has begun a $4 million capital improvement program to upgrade the property exterior, common areas, and unit interiors. Planned upgrades to the interiors include new stainless appliances, stone countertops, new cabinet faces, upgraded lighting and plumbing fixtures, vinyl plank flooring, and tile backsplashes. Exterior and common area improvements will include all new landscaping throughout, exterior paint, fitness center upgrades, and pool furnishings.
“Our cost basis, combined with our ability to take advantage of scale in the market, will allow us to create a more luxurious living environment on par with the competitive set, and still keep rents affordable for working families,” Ferrari said in a statement after the deal closed.
A few years ago, Ferrari says, there was plenty of space for companies to implement a value-add program similar to TruAmerica's. These days, though, it’s more competitive. “As you’ve seen a lot of supply hitting [urban luxury] markets and very little being built in the suburbs, in the last year or so the suburban value-add space has become much more crowded,” he says. “It’s certainly made it more competitive for us to buy deals, but it’s been great for deals that we’ve implemented our business plan and are ready to move on from.”
While the days of 4-5% rent growth projections are no more, Ferrari says, there are still suburban markets in which TruAmerica is active that have 3-4% rent growth forecasts.
“It is more competitive, and pricing is getting more aggressive, and cap rates are not going up,” he says. “But do I think that there’s still great investment opportunities? Absolutely, we’re seeing them all the time. Particularly for a group like us where we can implement a cost effective program. But are we still going to deliver returns that are as robust as we were delivering on acquisitions three years ago? No, returns have come in but they’re still compelling.”
When it comes time to exit, Ferrari adds, “There’s definitely been demand for properties that we purchased several years ago and that we’ve now sold. Investors used to speculate if there would be demand for properties that had been close to fully renovated and we are in fact seeing buyers seeking out suburban opportunities from investors that do not want to or cannot implement a value-add strategy but really like the growth story that can be found in these suburban submarkets.”
Although the recent Winter Springs acquisition was an off-market transaction, Ferrari says TruAmerica is typically competing with five or six firms on a given deal.
Overall, according to Ferrari, TruAmerica has an $800 million acquisition target for 2018 – roughly 40% of which will come on the East Coast. Ferrari, who spends two or three days each week scouting properties and meeting with local stakeholders, says his division would like to expand its presence in the mid-Atlantic and Florida. It is also eyeing metro New York City and Boston, but the most likely push will be into Atlanta, he adds.
“If we, by the end of 2018, had multiple assets in Atlanta, expanded our presence in Florida, and had added another asset or two in Northern Virginia, while rounding out our team, that would be a very successful 2018,” he says.