Last week, Dallas-based Mill Creek Residential Trust closed its first vertical development financing deal. And, earlier this week, the Trammell Crow spinoff paved the way for a lot more future deals via a new joint venture partnership with White Plains, N.Y.-based Rockwood Capital and Crow Holdings. The two firms invested $200 million in Mill Creek.
Last August, Brindell and his senior management team (which averages 28 years of experience) launched Mill Creek. Overall, the company includes 90 employees. The team has identified 14 core markets that have been historically profitable to focus its development, construction, and acquisition endeavors. But for this year, the majority of the company’s starts will be in the Mid-Atlantic corridor, from Washington, D.C., to Boston.
Brindell chatted with Multifamily Executive senior editor Les Shaver about the company's outlook for the year.
MFE: How long have you been working on this deal with Rockwood?
BRINDELL: We started the effort to raise capital in mid- to late July. It was a part of the broader strategic plan related to the structuring and creation of Mill Creek Residential Trust. We arranged bridge equity that we believed would be sufficient to sustain us until we had permanent equity both committed and funded. Our desire was to have new equity sufficient to provide the capital base that we thought we really needed to properly position us for growth and expansion. This capital represents an enterprise-level investment.
MFE: How many starts are you projecting in 2011?
BRINDELL: We have about 2,220 units that have both debt and equity capital committed in the pipeline right now. We should close the vertical financing on all of those between now and early June. We have an additional 900 units-plus that are in our pipeline and that I believe we can start before the end of the calendar year. They will likely be fourth quarter starts. So, we could start approximately 3,000 units this year.
MFE: Where will you focus your efforts?
BRINDELL: A majority of our near-term activity is what I would describe as high-density urban or suburban, transit-oriented development. And we will still engage in the development of garden product in a number of markets.
MFE: I assume this means you’re seeing the construction financing markets open up?
BRINDELL: It’s opened a lot in the past nine months, but I would still describe it as constrained. I expect that it will continue to be constrained for awhile longer. There are a number of banks that are still struggling with legacy real estate, and that has a negative impact on their ability to engage in new lending.
The construction financing that’s available is for strong sponsors with good balance sheets and very compelling assets. Certainly there’s a lot more talk about new development activity, but I’m not sure all of the conversation is translating into real production. I think that’s largely a function of constraints from the banking industry.
MFE: Your spin-off was a way to clear the slate and get those loans right?
BRINDELL: It was intended to do two things. Based on the business plan that we created, we needed to have a solid capital base for growth and expansion of the business going forward and to provide flexibility to pursue development and acquisition in markets where we believe that we will see above average returns. We couldn’t do that and also provide the necessary capital for the existing assets at Tramell Crow. As we went through the process of evaluating new capital sources, it became clear that new investment capital wanted a clean balance sheet. The creation of Mill Creek was the way to provide that.
MFE: What is Mill Creek’s strategy? Is it like TCR’s?
BRINDELL: The Mill Creek business strategy is not very much different from the strategy that my partners and I pursued with TCR. In the near term, it will be weighted towards development, because we think there are terrific opportunities in the development space in just about every market where we are active today.
There are still attractive acquisition opportunities, and we intend to be an active buyer of assets; but we’ll be looking for opportunities to create new value in the acquisition process. We believe that our skill set favors developing core assets rather than buying core assets. On the acquisition side, we need to be a value-added player rather than buying core assets and simply holding them. We’ll be weighted disproportionately in the near term to new development, based on our assessment of market opportunities.
MFE: Will you be holding or building to sell?
BRINDELL: We’ll be doing a combination of both. We’ll be less a merchant builder and more an investor/builder. We will be investing our capital alongside our institutional joint venture partners. So we’ll be looking at opportunities for value creation through capital appreciation as well as income growth. Part of our objective in raising this new capital was to create strong liquidity for our balance sheet in the near term. But over time, we want to replace that with a stable base of apartment assets.
