TruAmerica Multifamily Investment

2019

MULTIFAMILY INVESTMENT The TruAmerica Story:

Smooth Sailing

BEST BOSSES IN THE BUSINESS

Upgrading Class B Apartments: Home Sweet Home for Pension Investors

CAUTIOUSLY OPTIMISTIC

Investors Embrace Multifamily As Demographic Trends Shift

From Bob Hart

T

ruAmerica is a vertically integrated, value-add multifamily investment firm based in Los Angeles. Founded in July 2013 as a joint venture with The Guardian Life Insurance Company of America, TruAmerica has quickly become one of the country’s most active multifamily investors.

I’m proud to say TruAmerica was a pacesetter early in our evolution. In our first several years of existence, we acquired more than $2.5 billion in apartments landing us in the top 10 lists of buyers domestically. This took a tremendous team effort from a start-up firm that was just learning how to work together.

Our team brilliantly overcame the challenge of building a new organization from scratch and today, the platform has grown to more than 50 employees in six offices covering seven West Coast markets, the Mid-Atlantic and the Southeast with nearly $9 billion in assets under management. And we continue to expand our footprint nationally, having made our first investment in Raleigh, North Carolina.

Testimony to TruAmerica’s success and reputation, our investor base has grown to 23 domestic and off-shore capital partners who have chosen TruAmerica for investment in workforce housing throughout the United States.

During our brief history, we have witnessed and played an active role in the events that have helped shape the multifamily investment market. The following pages help to tell the TruAmerica story and the changes taking place in multifamily markets throughout the country, though local, regional and national press.

While we are proud of what we have accomplished, we continue to look forward to the future, as we have a great runway ahead of us. This is only the beginning of the TruAmerica story.

Robert E. Hart President and CEO Mark Enfield Chief Administrative Officer Karen Millan Chief Financial Officer Noah Hochman Co Chief Investment Officer Matt Ferrari Co-Chief Investment Officer Amir Eshkol Executive Managing Director, Construction Services

MULTIFAMILY INVESTMENT Tammi Warner Managing Director, Transactions and Underwriting

Editor Bruce Beck DB&R Marketing Communications, Inc.

On the cover: Covington Park, Phoenix, AZ

Vintage Pointe – Las Vegas, NV

TruAmerica Multifamily Reports Strong Start

Multifamily Picks Up: TruAmerica Buys, Berkadia Finances Seattle Properties

California apartment company makes first Denver buy

Multifamily Investment Firm Acquires Six Properties in First Nine Months Since Company Launch

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OS ANGELES, CA (April 1, 2014) –TruAmerica Multifamily, the Los Angeles-based real estate investment firm led by industry veteran Robert E. Hart and The Guardian Life Insurance Company of America, today announces the $55 million acquisition of Denver’s Tamarac Village Apartments and the $27 million acquisition of Seattle’s Westhaven Apartments, bringing the firm closer to reaching its goal of building a $1 billion real estate investment portfolio by 2015. TruAmerica, which launched in July 2013, has shown tremendous growth in its first nine months, purchasing six multifamily properties in prime locations throughout Northern and Southern California, Denver and Seattle, bringing its multi-state management portfolio to nearly 10,000 units. The Tamarac Village transaction was completed in partnership with DVO Real Estate and RCG Longview; and the Westhaven transaction was in partnership with Intercontinental Real Estate Corporation.

“In 2014, TruAmerica will continue to build on the momentum that we established in our initial months by targeting high-growth metropolitan regions throughout the Western United States,” said Robert E. Hart, President, CEO and Founder of TruAmerica Multifamily. “Today’s acquisitions of Tamarac Village Apartments and Westhaven Apartments serve as a prime example of our investment strategy to target high-quality, value-add workforce housing assets. From millennials to baby-boomers, there is a paradigm shift in America’s urban areas toward increased multifamily living as a wide range of demographics actively seek apartment living as an alternative to single-family homes. We are building a cross-section of multifamily properties in the value-add space over the next two-and-a-half years to capitalize on this change.”

California apartment company makes first Denver buy

TruAmerica Nears $1B Portfolio Goal

TruAmerica has completed six acquisitions since its launch in July 2013, for a total portfolio value of more than $293 million: • 221-unit Piazza D’Oro townhome complex in Oceanside, Calif. for $81 million (October 2013) • 168-unit Avenel Apartments in San Jose, Calif. for $38 million (October 2013) • 170-unit The Vineyards townhome complex in Gilroy, Calif. for $38 million (December 2013) • 309-unit Arcadia Luxury Townhomes in Federal Way, Wash. for $54 million (December 2013) • 190-unit Westhaven Apartments in Seattle, Wash. for $27 million (March 2014) • 564-unit Tamarac Village in Denver, Colo. for $55 million (March 2014)

Company buys Denver apartment complex for $105 million

Value of West Seattle apartment complex jumps 48 percent in sale to L.A. company

With a crew of experienced professionals, this two-year-old company has exceeded its own expectations and navigated its way to

The The

the upper echelons of workforce housing.

What’s next on its course?

TruAmerica TruAmericaStory: Story: Smooth SmoothSailing Sailing

By Carrie Rossenfeld

T

he nautical references abound at TruAmerica Multifamily. CFO Karen Millan tells Real Estate Forum that president, CEO and founder Bob Hart, a “super-avid boater,” is referred to as the “captain of this ship,” the “captain at the helm” and his staff of “TruAmericans” as his “crew on board; there are no seas we can’t sail.” One thing is clear when speaking with several executives at the firm: they are all working there because they each have a high respect for their captain, who has led them to calm seas..

While the firm has only been existence for a little more than two years, its roots go back more than a century and a half. “The roots of this company are with an insurance company in New York called Guardian Life,” Hart tells Forum.

“Guardian had been an investor with me when I was president of Kennedy Wilson Multifamily, and I had been working with them for almost eight years. The seeds for 28 Real estate FoRum September 2015

this firm were born at another place, but there was a relationship between us of trust, camaraderie and shared values. I was learning about them and vice versa. We started talking about what they wanted to achieve and what I wanted to achieve, and after 14 years with Kennedy Wilson, I decided I would leave and form a new venture with them. They are one of the most highly rated old-line insurance companies in the country, with an insurance platform that was built over the past 150 years.

They’ve been in business a long time and take a very long-term view of what they do, including investments in real estate that really matched mine. It made investing with them very easy.”

Hart’s goal was to create a new company in the multifamily space that was very dedicated to class-B multifamily product. “The tenants are renters by necessity,” he says.

“Some call it affordable housing, but that niche is not what we do. We focus on what

most people in multifamily live in—middle market or class B. We buy and reposition in all major cities in the Western US, and our mission is aligned well with what Guardian wanted to do. We’re not developers of classA, and we’re not doing class-C—we have a strong commitment to class B.” Hart shies away from using the term “workforce housing” because it “sounds like you’re talking about Section 8 or affordable. I call it affordable because it’s really what the $50,000-to-$70,000-a-year household-income bracket lives in. This income bracket applies more to the West Coast class-B renter—in the Midwest it might be a different number. I think calling it class-B is the best way to describe it.”

He explains that TruAmerica acts as a fiduciary with discretion for Guardian’s and all of its investors’—including Allstate’s— institutional capital. “In general, we bring in other capital partners, that’s what we’re doing. We’re JV partners, but in my busiwww.globest.com/realestateforum

ness, we act as fiduciaries, almost as an advisor would, over the capital.”

Chief administrative officer Mark Enfield adds that the proverbial double bottom line comes into play with this description of TruAmerica’s role.

“Obviously, we’re a fiduciary first and foremost for our investors, but ultimately it makes you feel good to transform the living experience for these residents,” he tells Forum. “If you’re thoughtful about what you’re going to do in the renovation, which can be seen in the before-and-after pictures of the assets that we’ve acquired, it’s pretty amazing what you can achieve.

These renters by necessity can’t afford class-A rents. You’re significantly improving these properties that have often gone unrenovated for 10, 20 or 30 years. You’re

improving these residents’ quality of life and making money for the investors, so it’s a double bottom line.”

In addition, Enfield points out, there’s a huge supply- demand imbalance in this space across multifamily residential housing, with 85% of new multifamily inventory being built for only 15% of the population. And there’s a year-over-year increasing demand for class-B product that isn’t likely to be met. “Despite what is considered to be normalized household formation projected for 2015, most experts that you talk to think we’re still going to have a 300,000-unit to 500,000unit supply deficit, even with over one million units coming online this year.”

Hart adds that no one is building in the class-B space, “and frankly, no one’s build-

ing enough in the affordable space as well, so you have this squeeze of demand. The trend in US rental housing as a whole has gone from about 30% of the population to almost 40%. Single-family ownership has gone from almost 70% of the population a decade ago toward 60%. The statistic is for every percentage point you’re adding about 1,000,000 renter households; we’ve added well over five million rental households by the shift, coupled with the absorption of single-family homes into rentals and the trend toward living in or closer to cities and Millennials putting off buying homes, that demand in the affordable or workforce/ class-B space is higher than it’s ever been.”

During the recession and subsequent correction, little to nothing was built, and most of the multifamily development

Bob Hart (center), Chief Executive Officer and “Captain” of TruAmerica, with his “crew on board.” From left: Noah Hochman, Greg Campbell, Lynn Owen, Hart, Karen Millian, Mark Enfield and Amir Eshkol.

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September 2015 Real estate FoRum 29

that’s occurred since the recession has been class-A because of the high cost of land, and it’s clear why there has been a tremendous shortage of class-B rental housing. “It’s a perfect storm for the owner/operator,” says Hart.

The Western US is even hungrier for this product than other parts of the country, he adds. “If you look at L.A., the homeownership rate is in the low 50% range; whereas nationally it’s in the low 60%. There’s a much higher rentership rate, and it’s similar in other areas of the west. There’s a more critical demand for multifamily housing because of the low availability of land and entitlement challenges. This is also true in parts of the Northeast, but it’s less true in Texas, Phoenix and Atlanta.”

Industry research supports these findings. A recent National Multifamily Housing Council survey on consumer demand for rental apartments “provides solid evidence

We’re not just buying the properties and letting other people run them. We are doing all the hands-on things that make an integrated company work.”

BOB HART

Founder, President and CEO

30 Real estate FoRum September 2015

that despite the strong pickup in new apartment construction this year, demand for rental housing is even stronger,” according to Mark Obrinsky, NMHC’s SVP of research and chief economist.

Aside from the above reasons for focusing on multifamily, the asset class makes sense for its investors because of the nature of multifamily tenancy—and institutional investors are catching on, TruAmerica’s executives point out. “Multifamily isn’t like an office building or retail center where, if a tenant moves out, you have to spend large amounts of money to rehab the unit,” says Hart. “You can turn it quickly without interruption. Occupancies are very high—in the 90% to 95% bracket—and cash flow is very durable as a result of that. You don’t have long periods of downtime waiting to fill up vacancy. It’s now widely accepted by pension funds and insurance companies— we’re also seeing firms like Blackstone and Starwood and a lot of the big Wall Street guys getting into this.”

Despite its commitment to the class-B space, the firm is also open to opportunistic investments for diversification. This summer, the firm and Capri Capital Partners completed the year’s largest multifamily purchase in California with the $283-million acquisition from a partnership between J.H. Snyder Co. and Washington Capital Management of the 464-unit Vermont mixed-use multifamily complex in the Koreatown neighborhood of Los Angeles. Hart says the purchase was a “presale where we bought the building and leased it up. It’s a class-A signature building, and we’re doing another presale purchase in Laguna Niguel. So we’re doing some class-A and co-investment development to create a balance with all the class-B we do. This means reduced risk for the developer, since the risk is mitigated in class-B vs. class-A new construction, and it allows an additional type of investor to be in our space.”

Hart points out that the firm’s integrated platform is key to its strategy. “We’re not just buying the properties and letting other people run them. We’re doing all the hands-on things that makes an integrated company work. We’re putting together a business plan to reposition and improve the property; doing unit interiors where we’re putting in new fixtures, appliances and countertops; rehabbing the common areas with new gym facilities and dog parks; and providing new aesthetics

We are a fiduciary first and foremost for our investors, but ultimately it makes you feel good to transform the living experience for these residents.”

MARk EnfiEld

Chief Administrative Officer

for the building. We’re what we call a value-add operator with in-house asset management; we’re very hands on.”

Enfield says while you often hear the terms “capital allocators” vs. “owner/operators,” TruAmerica is very much an owner/ operator. “We have investment management experience as well as real, hands-on property- and construction-management expertise.” In fact, Hart’s background is in asset management as well as owning and operating properties, and he says much of the firm’s staff also has this experience.

“We’re not just number-crunchers—we’re nuts and bolts people, and we like getting our hands in the clay.”

Also part of the firm’s integrated strategy is its approach to renovations, which involves improving operational efficiencies while keeping rents affordable with room for rent growth—not relying on asset appreciation or cap-rate compression, Hart says. “We try not to overimprove. I like to make the analogy between a Prius and a Jaguar. They both get you to the same place, but there are www.globest.com/realestateforum

different cost structures. We’re not trying to build a Jaguar. We’re trying to do rehabs and reposition the real estate for the markets we serve. We add features, finishes and amenities that are balanced and appropriate, and we try to do that in a manner whereby we don’t have to charge a rent so high that it’s not in line with the nature of the markets we serve.“ Hart points out that for the middle class, household incomes have grown, but individual incomes haven’t grown that much.

“People are allocating a lot of their income to pay rent, and there’s only so far that can go. Some cities want to pass living-wage standards, and that’s going to be a challenge going forward. It used to be that people tried to keep rents to within 30% of their income, but particularly in class-A, people want to live in a nice place downtown or close to work are spending 40% to 50% of

We were looking at doing $1 billion in acquisitions in three years, and we will be at over $2 billion by the end of this year. Our growth has far exceeded our business plan.”

Karen Millan

Chief Financial Officer

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their income. We’re not there in the class-B space, but there’s still a bit of a rent squeeze going on that affects the consumer.”

Lynn Owen, chief operations officer, tells Forum the integrated platform extends to her role as well. “We made the decision last December that the construction management team would roll up under me because the asset management team rolled up under me. The asset managers are really CEOs of their own portfolio and their sole responsibility is to make sure every piece of the business plan we presented to our investors is in place. We agree on the improvements we’re going to make, and the expected rent premium. We’ve done market research to support the business plan and we’ve given the implementation responsibility to the asset managers.

I’m going to be responsible for these two teams and have one accountable person, one business plan, and we’ll work together as a team to make those decisions. These team members have great minds and years of experience working together.”

One of the firm’s accomplishments that has surprised even its founders is the pace at which it has grown in just two years.

Millan says, “We were looking at doing $1 billion in acquisitions in three years, and we will be at over $2 billion by the end of this year. Our growth has far exceeded our business plan, thanks to Bob as our leader, with his vision and drive.”

The team was built through existing relationships, and Enfield says the firm did not use a headhunter or recruiter to hire a single person in two years. This may be why TruAmerica maintains an entrepreneurial, yet institutional culture.

According to Owen, “We have grown so quickly, and some partners ask how we are managing this growth. We spent a great deal of time to strategize about how we were going to manage it so that we stayed ahead of all of these business plans.”

Key to the firm’s growth, according to its team members, is the culture that Hart promotes as well as his own integrity. “One thing that’s basic to Bob Hart is when he says things to an investor, it’s not a sales pitch,” says Owen. “He’s very thoughtful in what he says; his reputation and his word are everything. Whatever he tells them, he will do at least that or better.”

Millan echoes this sentiment. “Bob has a fantastic reputation; people love to do deals with him, and he’s not intimidated by especially challenging deals. His leader-

We spent a great deal of time strategizing about how we were going to manage our growth so that we stayed ahead of all of our business plans.” lynn Owen

Chief Operations Officer

ship is huge, he’s fun to be around and he has this enthusiasm for real estate and life that’s very contagious.”

Enfield adds, “I truly believe Bob has no enemies in the industry. I never heard a bad word about him, and that’s a big reason he’s been so successful at crafting and building the team he has.”

TruAmerica’s growth has led to some milestone investments including the Vermont, the JH Portfolio and Berkshire Portfolio, and the firm has become one of the top-10 most-active buyers of multifamily in the country. This year, it has expanded into new markets including Las Vegas, Salt Lake City, Portland, San Diego County and the Inland Empire, and it has responded to a significant appetite for investment from domestic and offshore investors as well as repeat investors.

Hart attributes the firm’s success to understanding trends in the marketplace—both macro and micro—as well as the tailwinds. In the Western US, those market drivers include the multifamily fundamentals mentioned earlier as well as September 2015 Real estate FoRum 31

the low interest rate environment.

But what’s also interesting is the growing number of off-market transactions the firm has been attracting. “Getting off-market transactions is what everybody’s looking for, and we’ve been strong at that,” says Enfield.

“We’ve been shying away from fully marketed deals. Our debt relationships are great, but the equity sources we’ve been able to do deals with—or at least seriously discuss deals with—are really a who’s who in the multifamily investment space. Bob’s reputation and the amount of deal flow we see really gets us in the door to a lot of places including on the seller side. He’s transacted with many of these sellers over the years, and his reputation for execution means a lot to them. He’s a friendly guy, and they approach him and talk to him very early on in the process.”

Of course, the firm’s programmatic capital with highly respected firms like

We’re continuously looking for new partners that share in our vision here.

We’re continuing to build our capital relationships with strategic partners.”

Noah hochmaN

Senior Managing Director

32 Real estate FoRum September 2015

Guardian and Allstate also attracts deals.

“Not many individuals have the financial wherewithal to write co-investment checks that we have without these types of partnerships,” says Enfield.

According to Owen, having that kind of backing is important, but Hart is still clearly the driver of these deals. “On every deal we do, Bob has discretion to make decisions, but it’s important to have the backing of these large, reputable companies. Guardian is an 80% owner of the TruAmerica platform, and it has been around since Lincoln was president—it’s not going anywhere. It was grown on good, solid business decisions, and they saw something in Bob that made them want to invest long-term with him as a sponsor. “ The right opportunistic investments have also been key to the firm’s growth.

Greg Campbell, senior managing director of acquisitions for TruAmerica, tells Forum the firm is not afraid of these.

“Sometimes you have to move very quickly and bring in the right partner. Because we have built a pretty good stable of partners, when something comes available, we can always think of the right partner to approach with it.”

Noah Hochman, senior managing director of acquisitions and investor relations for the firm, tells Forum, “We’re continuously looking for new partners that share in our vision here. We’re continuing to build our capital relationships with strategic partners.”

As the firm enters its third year, Hart says it will continue to grow in Western markets that are coming of age including Salt Lake City, Las Vegas and Phoenix, while pursuing transactions in Seattle, the Bay Area and Southern California. “We’re deepening our market share in those areas that are experiencing good growth and filling out our capabilities in those areas in asset and construction management. At some point, we’ll start moving the company eastward, but over the next couple of years, we’ll maintain our overall position in the West.”

Enfield says first and foremost, TruAmerica has to execute on the business plans it has crafted with its investors. “The firm is only two years old—we have to establish a track record. We have to prove to our investors that we can implement these renovation strategies, and we are well on our way to doing that. Across the board, our portfolio is per forming

Because we have built a pretty good stable of partners, when an opportunity becomes available, we can always think of the right partner to approach with it.”

GreG campbell

Senior Managing Director, Acquisitions

extremely well, but that can change. We have to balance the continued growth of our firm while remaining focused on managing our existing portfolio.”

Enfield adds that the firm just closed on a five-property, off-market portfolio in Seattle and Portland and has two other portfolios under contract set to close in the fourth quarter of 2015, predominantly in the Pacific Northwest. Potential diversification of product type and geographical footprint could be in the plans, and the firm is looking to develop new capitalization structures and investment vehicles, which could include discretionary capital, a separate account and a co-mingled fund.

Owen says she doesn’t see the firm’s momentum stopping any time soon, but Campbell says that continued growth requires discipline. “Some of the best deals are the ones you didn’t do.” ◆ Reprint orders: www.almreprints.com

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Covington Park, Phoenix, AZ

job market recovered. Across all markets, the number of renter-occupied residences grew by 2 million last year, according to a January report from the U.S. Census Bureau.

“Millennials are largely attracted to city centers,” said Douglas Herzbrun, global head of research at CBRE Global Investors. “Anywhere where you have a cluster of the kind of businesses that are growing today -- creative and technology.”

Building Boom

By Nadja Brandt March 6, 2015

Apartment Investors Turn to Suburbs After Crowding Cities

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olony, in Ontario, California includes 160 units purchased in January 2015.

Source: TruAmerica Multifamily, Forrent.com via Bloomberg

(Bloomberg) -- Real estate investor Robert Hart pulled into the lot of a 400-unit apartment community in a San Diego suburb last month, prepared to pay up for the recently completed project on a quiet residential street. A competitor from a publicly traded landlord was already there, he said.

“It was on the one hand reassuring to know that we were both chasing the same opportunity,” said Hart, president and chief executive officer of closely held TruAmerica Multifamily. “On the other hand, it reinforced my opinion that large institutional real estate investors will be chasing yield far beyond the urban core.”

After years of clamoring to buy the most centrally located rental buildings in major urban centers, U.S. apartment investors are rediscovering the suburbs. Transactions for multifamily properties outside cities -- often sprawling, garden-style complexes appealing more to families than urban-dwelling 20-somethings -- are on the rise as an increase in construction slows rent gains in more central areas.

“The urban supply was just continuing to ramp up pretty quic kly,” said Sean Breslin, chief operating officer of Arlington, Virginia-based AvalonBay Communities Inc., the second-largest publicly traded landlord in the U.S. “On a risk-adjusted basis, the suburban markets look more attractive.”

About 45 percent of AvalonBay’s under-construction developments are in suburban locations, while the pipeline of projects the firm has not yet started leans 75 percent in that direction, Breslin said in an interview. Apartment owners including UDR Inc. and Essex Property Trust Inc. are also predicting growth outside major business districts.

Blackstone Landlord Blackstone Group LP, the largest private-equity investor in real estate, is building its own apartment company focused mostly on suburban areas where there hasn’t been much construction, betting on a shortage of housing supply. The New York-based firm agreed in January to acquire 36 low-rise multifamily properties across the U.S. for $1.7 billion, according to people with knowledge of the transaction.

Nationwide, purchases of apartment buildings outside the urban core climbed 8.2 percent last year to a value of $82.5 billion, according to New York-based property-research firm Real Capital Analytics Inc. In Boston’s metropolitan area, 95 percent of all apartment-building sales in 2014 occurred outside the city center, compared with 66 percent the year before, the firm’s data show. In Seattle, the share was 85 percent.

The enchantment with the suburbs is a turnaround from just a few years ago, when buyers and developers sought safe investments in downtown rental housing, banking on demand from 18-to-34-year-olds who would be seeking to rent in urban cores once the

Developers rushed to build multifamily buildings to capitalize on the demand, spurring a surge in supply that’s now keeping a lid on rents. More than 77,000 apartment units were added across the country in the past three years, according to Axiometrics Inc., a rental-data company.

Rents in urban core markets climbed 3.5 percent in 2014 from a year earlier. That compares with an increase of about 5 percent in suburban areas, Dallas-based Axiometrics said. The company defines urban core as areas in and near the central business district of each metropolitan market.

“It will be relatively more challenging for investors going forward in these core markets,” said Ryan Severino, a senior economist at property-research firm Reis Inc. “You look at the fact that rent growth in suburbs and central business districts isn’t that different and you combine that with that there isn’t as much development, then the suburbs are looking pretty good.”

Space, Schools While newly built urban complexes tend to have smaller units with a focus on such amenities as decks, spas and common areas similar to hotel lobbies, suburban apartments are often low-rise, surrounded by lawns and trees. They cater to tenants who seek more space at lower rents, and quality school systems for their children, according to Hart of Los Angeles-based TruAmerica.

For his company, the appeal of the property south of San Diego was simple math, Hart said. Rents in the suburban area are expected to climb a combined 12 percent this year and next, compared with a 5 percent increase downtown, according to data provided by Reis.

TruAmerica, which owns rental properties in suburbs of Los Angeles, San Diego, Southern California’s Inland Empire and Denver, plans to make an offer for the complex when bids are due this month, Hart said.

New Supply Nationally, Household growth and rental demand will be greater in the urban core than in the suburbs over the next year, AvalonBay’s Breslin said. Yet that demand will be overshadowed by the high volume of supply coming to markets such as Boston, where rent growth in the city proper averaged 0.3 percent last year, making it among the weakest urban areas in the country, according to Axiometrics. In January, average rents in the city fell 2.4 percent from a year earlier.

“Even though there’s more demand there, supply is sort of swamping it at the moment,” Breslin said.

Workforce housing A value-add multifamily strategy can deliver durable cash flow

by Noah E. Hochman and Mark Enfield Photo: Courtesy of For Rent Media Solutions

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he multifamily-housing sector led the recovery in commercial real estate over the past several years, as occupancy remained buoyant and U.S. housing markets began a secular shift toward renting that is still under way.

The strong performance spurred the formation of numerous funds targeting the sector but, with capital flowing in and returns easing, some investors are beginning to question whether they have missed the opportunity.

The asset class continues to offer significant long-term potential, however, and an innovative value-add strategy can deliver an institutionalscale platform for investing in one of the most compelling segments of the multifamily market: workforce housing. It is a strategy that captures the durable returns of the asset class while providing a good measure of downside protection

against potential interest-rate increases.

Multifamily housing was the first property type to recover from the global financial crisis, as financial stress forced many people into rental housing, and millennials’ preference to delay homeownership kept occupancy high and rental rates rising. While the 10.3 percent annual gain for the apartment subindex of the NCREIF Property Index, as of fourth quarter 2014, was the lowest of the association’s five sector benchmarks for that period, the other property sectors were, in effect, only catching up to the multifamily market. And despite that short-term lead change in performance rankings, powerful economic and demographic tailwinds continue to support fundamental demand for rental housing, and the declining affordability of single-family housing in the post-crisis world is creating demand for rental

units that are within the financial reach of working Americans.

Workforce housing is a segment that is vital for continued economic growth in the United States — and one that largely has been overlooked by major investment firms. You could say the strategy is just what the doctor ordered for today’s low-interest-rate environment. Workforce housing offers less-volatile cash flows from properties that are consistently leased up, resulting in markedly less risk than an office or retail property. Those sectors carry significant risk compared to multifamily, especially when a business downturn or lease-rollover cycle could see tenants move on, resulting in an empty building and steep expenses for tenant improvements, marketing and new lease concessions — tenant volatility costs that are difficult to project but can nevertheless impair returns.

Investment in value-add workforce rental housing avoids the market risks associated with new development and the financial engineering

In workforce housing, in particular, the tenancy cycle works to keep overall rent levels closely aligned with the prevailing rate. and/or high leverage required to invest in class A, luxury rental housing. Yet, it does require an integrated team approach to “remanufacture” classic existing class B, garden-style properties strategically located near major employment centers and transform them into professionally managed, amenity-rich communities that warrant higher rental rates after renovation.

Multifamily property in economically sound regions, in contrast to sectors such as retail or office, is characterized by high occupancy and very little interruption in cash flow because of tenant turnover. In workforce housing, in particular, the tenancy cycle works to keep overall rent levels closely aligned with the prevailing rate for this property type, enabling investors to benefit from rising rental income as the economy strengthens. Annual turnover rates typically are near 30 percent — and can reach 50 percent — and lease terms are usually one year or less, compared to long-dated multiyear terms on office and retail space. What’s more, workforce rental prices are set on a daily basis as units are released, keeping rates in step with demand. Perhaps most importantly, people need a place to live even during economic travails that can see retail and office tenants depart for good — and a

place to live that is near a variety of work options is always in demand.

The value-add business plan is to capture the difference between the low cost of capital needed to acquire and renovate property, and the income stream from leased-up communities. The strategy typically creates a current-cash-flow yield ranging from 7 percent to 10 percent, from the inception of any given project in the portfolio. In fact, about 50 percent of the return delivered to investors is from cash flow. The significant income contribution to returns illustrates a true valueadd approach — while cap rate compression will be a yield enhancer, a favorable cap rate is not required at exit to generate competitive returns, and the durable income stream provides downside protection against rising interest rates.

Executing the strategy effectively starts with the initial identification and acquisition of older class B properties at prices 25 percent to 40 percent below replacement cost. In some markets, it is possible to buy suitable properties at 50 percent below replacement cost. Going in at a steep discount reduces volatility in the portfolio and avoids the risks typically associated with new development, such as high land costs and increasing construction costs, as well as other barriers to entry that would require rents above the levels affordable by tenants in the workforce housing demographic.

The multifamily strategy is further supported by the availability of subsidized loans from government-sponsored enterprises such as Fannie Mae and Freddie Mac at interest rates much lower than the cost of debt from traditional commercial real estate lenders. Having that kind of accretive debt favorably impacts the cash flow and yield the strategy can achieve. Even as cap rates compress, the low going-in coupon on a subsidized loan can justify a five-year targeted holding period for portfolio assets. That holding period, shorter than most other property sectors, reflects an ability to execute and start adding value in as little as one to two years — and to raise operating income faster than other property types because of the frequent turnover of tenants.

The United States west of Denver is particularly fertile ground. Many metropolitan areas are experiencing sustainable economic growth, while at the same time housing affordability and home ownership historically have been significantly lower than national averages. Los Angeles, for example, is the most unaffordable rental market in the country, as well as the metro area with the largest share of its population renting their homes, according to UCLA Economic Letter: Real Estate and the Macroeconomy.

The Letter – Americas | 52 | May 2015

As of 2013, notes the UCLA Economic Letter, Los Angeles had the highest median rent burden in the nation, and the share of renters in Los Angeles experiencing rent burdens deemed moderate (spending 30–50 percent of income on housing) and severe (spending 50 percent or more of income on housing) has consistently outpaced

The global financial crisis has introduced a paradigm shift in how people think about renting versus owning a home. Many more Americans are becoming renters, either by choice or by necessity. the nation. The housing industry is not meeting the area’s needs; the UCLA Economic Letter reports the city needs to produce roughly 5,300 units per year that are affordable to those earning moderate or lower incomes, but production has averaged roughly 1,100 units per year since 2006. Compounding the problem, according to the publication, is that since 2000, 143,000 rental units that had been affordable to those making less than $44,000 a year became unaffordable.

Those supply and cost imbalances, while more stark in Los Angeles than most other cities, highlight the need for quality rental housing within the reach of working Americans. Major institutions are recognizing the need for, and the investment opportunity in, workforce housing.

The global financial crisis has introduced a paradigm shift in how people think about renting versus owning a home. In short, many more Americans are becoming renters, either by choice or by necessity. Today approximately 36 percent of Americans live in apartments, up from about 30 percent five years ago, and Standard & Poor’s Ratings Service expects that trend to continue. For starters, household formation is still below the historical average. In a recent report on the multifamily REIT sector, S&P projects an increase in new households, but notes “today’s new households generally have a higher propensity to rent.”

That propensity is a tailwind for value-add multifamily strategies and a beckoning call to investors seeking durable risk-adjusted returns. v Noah E. Hochman is senior managing director of acquisitions and investor relations for TruAmerica Multifamily, and Mark Enfield is chief administrative officer with the firm.

Alterra & Pravada – San Diego

The Letter – Americas | 54 | May 2015

TruAmerica Multifamily, Guardian and Allstate Life Insurance Company Partner on 1,500 Unit Portfolio Acquisition Growing Multifamily Company Launches New Investment Platform with Two of the Nation’s Largest Insurance Firms with Acquisition of Multi-State Berkshire Portfolio

TruAmerica buys Colorado, Washington Multifamily portfolio for $229M TruAmerica targets Denver in $229 million apartment deal Renton apartment complex sold as part of $229M deal

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OS ANGELES, CA (June 25, 2014) – TruAmerica Multifamily, the investment firm founded by industry veteran Robert E . Hart and The Guardian Life Insurance Company of America (Guardian) in 2013, today announced the acquisition of a three-property, multi-state apartment portfolio from an affiliate of Berkshire Group for $229 million. Together with Allstate Life Insurance Company, a subsidiary of The Allstate Corporation (NYSE: ALL), the purchase of the 1,514 unit portfolio is the first acquisition between the three companies and signifies a new investment platform by the Los Angeles-based real estate investment firm and the insurance giants.

Celebrating its one-year anniversary in July, TruAmerica has experienced tremendous growth since its inception acquiring 10 properties totaling more than $550 million. “On the heels of a momentous first year, we are excited to embark on this new venture with Allstate, starting with today’s acquisitions,” said Robert E. Hart, President, CEO and Founder of TruAmerica Multifamily. “We are transitioning into more of a multifamily-oriented society and corporate America is taking note. Our new partnership with Allstate signifies our continued commitment to investing in opportunities that provide affordable, workforce housing to fulfill growing demands. Homeownership rates in the United States have declined to their lowest level in almost 20 years while rental demands from almost every age bracket continue to increase. Attractive existing and projected economic fundamentals in Seattle and Denver provide an excellent value-add investment opportunity for this Berkshire portfolio.”

The Berkshire portfolio, which includes the acquisition of Berkshires at Lowry (Denver, Colo.), Ponderosa Villas (Aurora, Colo.) and Carriages at Fairwood Downs (Renton, Wash.) represents TruAmerica’s prototypical investment strategy to target high-quality, value-add workforce housing assets. TruAmerica plans to perform various upgrades to bring each property up to a modern standard and capitalize on the demand for superior, well-located housing.

TruAmerica continues to strengthen its presence in Renton, Wash. with the firm’s second acquisition in one of Seattle’s best performing submarkets. A rare townhome-style property, the 400-unit Carriages at Fairwood Downs presented an attractive investment opportunity. In addition to its close proximity to highly trafficked highways and large employment centers, including the Boeing Renton Plant, Carriages at Fairwood Downs is also strategically located within one of the top school districts in the state.

“The transaction represents a great opportunity to invest in highly desirable properties in growing markets in concert with world-class partners,” said Michael Moran, Vice President and head of Real Estate Investments at Allstate. “We believe the trends supporting rental housing, particularly more affordable alternatives, will persist and that the opportunity is a terrific complement to our growing real estate platform.”

Denver-area apartment complexes sold with $229M portfolio

TruAmerica buys four apartment complexes for $254.8M

TruAmerica Multifamily, Guardian and Allstate Life Insurance Company Partner on 1,500 Unit Portfolio Acquisition

TruAmerica, Guardian and Allstate partner on 1,500 unit portfolio buy

TruAmerica Pays $229Mln for 3 Apartment Properties; Gets Freddie Financing

ment sector, some bigger investors are joining with established operators to buy older apartment buildings and renovate them, so they can raise rents while still keeping them significantly lower than levels commanded by the upper end of the market.

Some institutional investors such as TH Real Estate have long had funds targeting this type of apartment-rental category, which has had a steady performance in areas surrounding prime cities such as Los Angeles, New York and Boston, as well as markets such as Minneapolis, Nashville and Austin, Texas, said James Martha, a managing director and head of TH Real Estate’s U.S. multifamily division.

By Keiko Morris Dec. 26, 2017

Investors Pile Into Suburban Rental Housing

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ow that the urban luxury-apartment boom is winding down, some big investors are fanning out to the suburbs.

“Their demand just stays constant, and rent growth is predictable,” Mr. Martha said. “You don’t have big highs, and the downside is limited.”

Robert Hart, whose career in the sector spans more than 30 years, formed a joint venture called TruAmerica Multifamily with Guardian Life Insurance Company of America in 2013, targeting older rental-apartment properties surrounding central business districts. The joint venture now manages a $7 billion portfolio of about 33,000 units across the U.S., making purchases with pension funds, other insurance companies and family offices. Insurance company Allstate, through its real-estate equity group, was one of TruAmerica’s early investment partners.

“Coming out of the crisis, we were buying a lot of class A [properties] as well,” said Bob O’Rourke, head of real-estate investments for Guardian Life. “But as the cycle continued, we saw class B becoming more attractive as we saw valuations and costs getting very high on buildings in urban centers.”

As institutional investors such as pension funds and insurance companies hunt for higher yields, they have been scouring the older and less glamorous suburban rental buildings that ring metropolitan central business districts, real-estate executives and analysts said.

TruAmerica’s strategy is to buy large apartment complexes 15 years old or older that need renovation and are within a 15-to-20-mile radius of major central business districts. The company makes upgrades to the individual units—in some cases spending as much as $10,000 each—and adds or improves amenities including fitness centers and clubhouses, allowing for higher rents that still attract a population segment renting out of necessity.

Part of the reason: Swelling supplies of new luxury apartments in urban areas are driving rents lower for high-end city apartments.

“There has been tremendous increased competition,” Mr. Hart said. “We have had a lot of entrants into this market.”

“About two years ago was the inflection point where we began to see the impact of having a lot of new product in the urban areas, and we also began to see the beginning of some softness,” said Jeanette Rice, Americas head of multifamily research at CBRE Group Inc. “We also saw vacancy rates inch up, so institutional capital is always thinking, ‘Where are the better returns?’”

Garden apartments, usually clusters of low-rise buildings typically in the suburbs with middle-class rents, have outperformed the high-rise apartment sector in the past year, according to a report from TH Real Estate, an affiliate of Nuveen, the investment-management arm of TIAA. Returns for garden-style apartments averaged 8% for the four quarters ended in June, compared with 5.1% for high-rise apartments, the report said.

Other factors driving the appeal of the older suburban apartment sector, typically called class B, include high occupancy rates and a high and constant demand from the population renting out of necessity.

In the third quarter, the vacancy rate for upper-tier apartments in the so-called class A category was 5.8%, while the rate for class B apartments was 4.3%, according to Marcus & Millichap Research Services and MPF Research. The suburban rental market targeting middle-income residents also is bolstered by a homeownership rate that has remained well below the 69% recorded at the height of the housing bubble a decade ago.

With apartment development still tough in suburban municipalities, the supply of new apartments that eventually could fall into the class B category in metropolitan areas has been limited—another plus, real-estate executives said.

“In the suburbs you didn’t have a robust pipeline because investors’ and developers’ focus had been primarily on the downtown market in major cities and because in the suburbs is where everyone took a bath and got hurt during the credit crisis,” said Jeffery Daniels, senior vice president at Institutional Property Advisors. “Now there’s a huge appetite for class B multifamily because investors get better risk-adjusted returns than [they do] building a brand new asset.”

While local and regional private companies still dominate the suburban class B apart-

The appeal of the strategy has been the ability to raise income from rents, creating a “durable cash flow” and the appreciation in the property’s value, Mr. Hart said. Last year, TruAmerica was able to sell a complex in Renton, Wash., with about 400 apartments for about $98 million—$36 million more than the company paid for the property about three years ago, according to public documents.

Some institutional investors are looking to invest in and upgrade these older apartment complexes more directly with regional operators for more transparency, greater control and lower fees than the usual private-equity-style funds, said Mike Moran, managing director of real-estate equity at Allstate. Those direct operators also have become more institutional with more professional management teams, better reporting, controls and governance, he said.

“We’re an institutional investor that needs yield in a low-yield environment,” Mr. Moran said.

Six Inland Empire apartment properties part of $481 million deal

TruAmerica Acquires Large Southern California Multifamily Portfolio for $482 Million

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OS ANGELES (January 21, 2015) – TruAmerica Multifamily, in partnership with a syndicate of domestic and international institutional investors including The Guardian Life Insurance Company of America® (Guardian) and Allstate, has acquired a 14-property multifamily portfolio for $482 million. The transaction represents the largest multifamily asset purchase in Southern California in nearly two decades and bolsters TruAmerica’s reputation as a major player in the multifamily investment sector.

TruAmerica Makes Bet on Upgrading Southern California Apartments

TruAmerica Apartment Buy Tops the Charts County apartments sold

“Assembling an attractive, value-add Class B multifamily portfolio of this size, particularly in Southern California, would take years if the assets were acquired individually,” said TruAmerica CEO Robert Hart. “Having a demonstrated ability to execute on complex transactions, we were able to source this deal off-market with very well capitalized institutional investment partners and take advantage of an exceptional and rare opportunity.”

The portfolio, acquired from Newport Beach, CA-based JH Real Estate Partners, Inc., totals 2,669 units and is comprised largely of 1980s vintage Class B apartment communities in Los Angeles County, San Diego County and the Inland Empire.

Newport Beach firm sells $481 million apartment portfolio

Three Local Properties Part of $482 Million Apartment Portfolio Deal

Each property within the portfolio fits into TruAmerica’s double bottom-line business plan to acquire and improve the operating performance of well-located mid-tier assets in primary Western US markets and transform them into affordable, higher quality workforce housing. “Class B rents are expected to rise at least 5% across most Southern California market sectors this year,” said Hart. “While we intend to benefit from the expected rise in rental demand, it is TruAmerica and its partners’ mission to create affordable, well-amenitized housing for the American workforce.”

TruAmerica foresees tremendous value-add upside across the portfolio in a number of areas and will invest an additional $40 million in its execution of a repositioning strategy that will include targeted property-specific exterior and interior unit upgrades, and community amenities. Properties will benefit from significantly enhanced pool areas, leasing offices, fitness centers and landscaping. Residents in freshly renovated units also will enjoy new and improved countertops, appliances, cabinets, flooring and light fixtures.

TruAmerica Acquires SoCal Apartment Portfolio for $482 Million

“This is a terrific addition to our growing real estate portfolio, and allows Allstate to invest in highly desirable properties in growing markets with trusted partners,” added Michael Moran, Vice President and head of Real Estate Investments at Allstate. “We believe the trends supporting rental housing, particularly more affordable alternatives, will persist.”

The portfolio acquisition was leveraged with a $354 million FannieMae Credit Facility from Berkeley Point Capital, which was originated by Senior Managing Director Mitch Clarfield.

The sizable agency facility, featuring a mix of fixed and floating rate, variable term loans with an exceptional blended interest rate of 2.59%, provides tremendous financing flexibility across the existing portfolio and gives the investor group the capability to acquire additional assets.

REAL ESTATE: Inland apartment complexes sell in $481.2 million deal

TruAmerica Buys $482 Million of Apartments in Tender-Love Plan

TruAmerica Multifamily Acquires Five-Property Off-Market Portfolio in Seattle and Portland for $104.75M

True to its word, California investment firm continues its Portland apartment buying binge

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OS ANGELES (December 10, 2015) – TruAmerica Multifamily, in partnership with its institutional equity investors including Allstate and The Guardian Life Insurance Company of America (Guardian), completed a $104.75 million purchase of a five-property off-market multifamily portfolio with assets located in submarkets of Seattle, WA and Portland, OR.

California real estate firm expands NW portfolio

The portfolio includes The Hanover in Beaverton, OR; V7 Apartments in Vancouver, WA; Constellation Apartments in Renton, WA; Park 120 in Everett, WA; and The Commons in Federal Way, WA. The last phase of a 14-property, $408.5 million portfolio purchase, which began in September, this latest acquisition adds 829 units to the Los Angeles-based investor’s rapidly expanding Pacific Northwest portfolio. In the past six months, TruAmerica and its institutional partners have invested approximately $600 million in the acquisition of more than 3,800 units in suburban Seattle and Portland bringing the total number of assets under management in the Pacific Northwest to almost 7,000 units.

TruAmerica Completes Major Portfolio Acquisition With Five Pacific NW Apartments

“This is an extremely diversified portfolio of affordable and desirable assets, which is in demand by middle class households, the greatest percentage of renters in the United States,” said Robert Hart, President and Chief Executive Officer at TruAmerica. “It exemplifies our investment philosophy and our favorable outlook on the Class B rental sector.”

The improving economy has led to rapid rent acceleration and a particular focus on the construction of expensive high-end multifamily housing, both regionally and nationally. This has forced working families and young professionals to migrate into “first ring” submarkets for more affordable options. TruAmerica’s value-add investment strategy focuses on western U.S. assets located in suburban communities close to high-growth urban markets where this phenomenon is most prevalent.

TruAmerica pays $105M for 829 NW apartments

“The addition of this portfolio underscores our commitment to identify, acquire and reposition apartment communities to provide higher quality housing in growth markets and offer affordable, highly amenitized rental units for working class families and young professionals,” said Robert LoCascio, Managing Director of Guardian’s Real Estate Investments group.

TruAmerica will invest more than $10 million across the portfolio to extensively renovate the properties in order to carve out a niche above traditional older vintage properties and to provide a value alternative to new construction in the area. Unit improvements will include new faux wood flooring and carpet, countertops, appliance packages, and washers and dryers at specific properties. The scope of work also will include site-specific upgrades to existing clubhouses, pool areas and fitness centers.

“We are excited to continue our successful partnership with TruAmerica. We believe this portfolio focused on growth markets in the Pacific Northwest provides very attractive yet affordable options for renters in these markets,” said Michael Durst, Associate Director, Real Estate Equity at Allstate.

TruAmerica Multifamily Extends Value Add Platform With Acquisitions in Portland and Seattle

MFE

january 2016

volume 21, issue 1 multifamilyexecutive.com

• • 2016 APARTMENT OUTLOOK • •

Bob Hart After a two-year buying spree, TruAmerica’s CEO may slow down in 2016.

{

CAUTIOUSLY OPTIMISTIC

PROCEED WITH CAUTION Transactions rose again in 2015, but myriad factors could complicate the outlook for the year ahead. by les shaver BOB HART HAD RUN KENNEDY WILSON’S MULTIFAMILY SHOP SINCE 2000. BUT WHEN ONE OF THE LOS ANGELES–

AFTER FIVE PROLIFIC YEARS, BOB HART AND HIS INDUSTRY PEERS REMAIN MOSTLY POSITIVE ABOUT 2016.

inside:

Michael Grecco

WHERE ARE WE IN THE CURRENT MARKET CYCLE? TOP EXECS WEIGH IN

based owner’s big investors, New York–based Guardian Life Insurance, decided to start a real estate operating company, it gave Hart an opportunity to launch his own firm.

In June 2013, Hart, with Guardian’s backing, launched TruAmerica Multifamily and

by October was buying apartments with the goal of purchasing $1 billion worth in the first three years. What followed was a 26-month sprint to amass 15,268 units by spending $3 billion for primarily B apartments in the Western U.S. So now that Hart has lapped his three-year plan in only two years, you might think he’s going to continue his buying frenzy. Not quite.

“I think we’re all going to sober up in 2016 if the spread between interest rates and cap rates continues to tighten,” Hart said in mid-November, after the 10-year Treasury had jumped 30 basis points in a week. “We’re going to be very, very cautious about price, and we’re going to watch interest rates very closely, because that spread could erode in the short run if rates continue to move up aggressively as they have recently.”

While Hart’s sentiment isn’t unanimous in the industry, there’s definitely an air of trepidation in the market that, with interest rates rising, rent growth potentially plateauing, and muddled geopolitical situations throttling foreign investment, this acquisition window could be closing.

Apartment transactions grew from $103.5 billion in 2013 to $113.1 billion in 2014,

}

• • 2016 APARTMENT OUTLOOK • •

which passed 2007’s previous high. By October of last year, 2015’s volume had surpassed that of the year before.

The question is, will the upward trajectory continue into 2016?

And, regardless of whether it does, what happens to cap rates?

TROUBLE SPOTS

One of the big X factors for 2015 was interest rates. Indeed, for Robert Lee, president and COO of Los Angeles–based JRK Property Holdings, the interest rate issue isn’t something on the horizon: He’s already seeing its effects.

“People are grappling with underwriting,” he says. “Interest rates are squeezing anyone under contract or closing [who] haven’t locked their rates.”

If rates move up further after the Federal Reserve’s decision to push up short-term rates, once-flowing returns could be challenged.

“We’re going to watch that real carefully in 2016, because we were getting cash-on-cash returns in the 8% and 9% range right out of the gate,” Hart says. “If you’re stretching interest rates, and cap rates aren’t moving as well, you need to be more cautious.”

Caution could take the form of more buyers sitting on the sidelines.

If that happens, there are arguments for cap rates going up or down.

“I don’t think cap rates themselves will move. What you might see is less transaction volume,” says Jim Costello, senior vice president at Real Capital Analytics (RCA). “If you bought an asset and get a good yield on it right now, why are you going to sell? If the buyers are getting a higher cap rate, you won’t have as motivated a seller. Conversely, you might see cap rates go up sharply, because, then, the only stuff that does sell might be more value-add, opportunistic-type stuff.”

If interest rates increase in 2016, equity could find other homes.

“If rates rise, other investment alternatives could start looking better as well,” Costello says. “You’re already starting to see the long end of the yield curve go up a bit. Will investors start to see safe, stable yields out of their bond portfolio that they haven’t been able to get for a number of years?”

Another factor that could pull investors back is the volatility of global capital. Middle Eastern investors have been major consumers of apartments, but low energy prices and regional wars could keep money at home.

Then there are Asian investors. This past summer’s Chinese market disruptions have brokers and transaction analysts wondering if the state is forcing those investors to pull back.

“You have some changes in the year ahead where there may be less sovereign-wealth money to move around,” Costello says. “I think the fear in the market is that there are these tailwinds in the market with foreign capital, but that may become a bit of a headwind if things don’t turn around in the commodity countries and China continues to be a bit of a drag.”

STRONG APPETITE PERSISTS

While rising interest rates and declining foreign investment could slow volumes this year, the systemic supply-and-demand factors that have pushed the industry to new heights over the past half decade don’t appear to be changing dramatically. MPF Research projects rents to jump 4.3% in 2016 as household formation and job growth continue driving demand.

30

MULTIFAMILY EXECUTIVE JANUARY 2016

Those factors helped fuel Starwood Capital Group’s buying spree.

The company, which was the second-biggest shareholder in Equity Residential when it went public in 1993 after it contributed properties to the REIT, has been in the apartment sector for 25 years. But over the past year, the Greenwich, Conn.–based company has bought or put 67,800 apartment units under contract.

Starwood, which made its name in the hotel world, prefers multifamily, particularly in the Sun Belt markets. In October, its Starwood Global Opportunity Fund X bought 23,262 apartment units from Equity Residential.

“We believe multifamily will outperform the other asset classes because of fundamentals: reduction in people moving into homes, good job growth, and pent-up demand from millennials,” says Christopher Graham, senior managing director and head of real estate acquisitions for the Americas at Starwood. While specific circumstances, like the board at Landmark Apartment Trust deciding it was time to sell 63 properties, drove Starwood’s buys in 2015, Graham sees no reason why the firm won’t have the same appetite in 2016.

“What we’re buying is a carbon copy of what we’ve been doing the last couple of years,” Graham says. “We really like the fundamentals of multifamily. If we’re presented with similar opportunities, I see no reason why we wouldn’t take them.”

If private buyers, like Starwood, remain aggressive, it will probably keep the REITs on the sidelines, for the most part, for another year. In 2015, Green Street Advisors said the publicly traded apartment owners were net sellers, as Associated Estates and Home Properties were pulled off the public markets by Brookfield Asset Management and Lone Star Funds, respectively.

“We’re hearing more anecdotes about levered buyers outbidding the REITs. Right now, the REITs’ cost of equity isn’t advantageous,” says John Pawlowski, a research associate at Green Street. “They’re trading at large discounts to net asset value. To issue equity isn’t prudent. They’re kind of handcuffed there.”

And private buyers can lever up a lot more at this point in the cycle. “REITs are sitting on the sidelines—it doesn’t make sense for them to acquire at this time,” says Britton Costa, director of U.S. Corporates, REITs, for Fitch. “Private equity buyers can put a lot more leverage on the assets than an investment-grade REIT can. If any REIT will have leverage in that 30% to 45% range on the debt-toasset basis, and five to seven times on a debt-to-EBITDA basis, you can probably go out and get a GSE-backed mortgage in the 65%-plus loan-to-value range. You can get much higher returns when you use leverage in the private market.”

A big part of the reason private buyers can secure that leverage, especially on large deals, is Fannie Mae and Freddie Mac. In 2015, they played pivotal roles in large transactions, such as Starwood’s purchase of the EQR assets. That shouldn’t change in 2016.

“The smaller, $80- to $100-million transactions would have happened, but the large ones may not have happened if there [hadn’t] been a reliable, dependable financing source,” Graham says. “I don’t see any change, because Fannie and Freddie have $30 billion apiece and fewer restrictions on affordability than they did last year.”

So with Fannie and Freddie’s continued strength and strong demand, maybe sales will continue to rise in 2016. But a word of caution: Mind the potential impediments on the horizon. MFE

WWW.MULTIFAMILYEXECUTIVE.COM

Prato at Midtown – Atlanta, GA

TruAmerica Partners With MSD Capital on First East Coast Investment

Los Angeles firm pays $187M for Baltimore-area apartment portfolio

LA apartment investor targets Annapolis for move east TRUAMERICA MULTIFAMILY MAKES FIRST EAST COAST INVESTMENT WITH ACQUISITION OF 1,004-UNIT BALTIMORE PORTFOLIO

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OS ANGELES (May 2, 2016) — TruAmerica Multifamily, in partnership with MSD Capital, L.P., has expanded its geographical footprint to the East Coast with the acquisition of a 1,004-unit apartment portfolio in suburban Baltimore, MD, in an off-market transaction valued at $187 million.

TruAmerica, Dell family office buy US multifamily portfolio

Los Angeles-based TruAmerica, one of the most active multifamily investors in the United States, has acquired a portfolio that now totals more than 17,000 units with an aggregate value over $3 billion. To date, TruAmerica has specialized in the acquisition and repositioning of mid-tier apartment communities in the Western U.S. but the acquisition of this portfolio is the first for TruAmerica east of Colorado as it expands its value-add platform to include select East coast growth markets.

Three Baltimore-area apartment developments sold for $187 million

The portfolio is comprised of the 158-unit Bayshore Landing in Annapolis, the 634-unit Sherwood Crossing in Elkridge, and the 212-unit Southfield in Nottingham. Each property is well–amenitized, featuring resort-style pool areas, clubhouses, fitness centers and other recreational facilities. The properties were built between 1984 and 1990.

“Similar to the West Coast markets in which we invest, substantially all of the new apartment inventory being built in the greater Baltimore area is targeted for ‘renters by choice,’ effectively pricing out the working class,” said TruAmerica CEO Robert Hart. “This was a major factor in the decision to target the Baltimore and Annapolis markets for our first East Coast investments.”

TruAmerica’s Steps into the East Coast with $187M MF Acquisition

“MSD Capital continues to see attractive opportunities in repositioning older multi-family assets,” observed Barry Sholem, head of MSD Capital’s real estate group. “We are excited to partner with TruAmerica on this portfolio, and look forward to pursuing other business together.”

LA-Based TruAmerica Opens DC Office, Acquires Assets in Mid-Atlantic

“This puts extraordinary pressure on, and underscores the need for, affordable quality rental housing to support that growth,” said Hart.

TruAmerica will complete an interior renovation plan initiated by the seller that includes faux-wood flooring, granite countertops, updated cabinetry and new appliance packages. TruAmerica’s business plan also calls for thoughtful upgrades to common area amenities.

“Baltimore is one of the top performing economies in the Mid-Atlantic and benefits from one of the most educated resident profiles in the United States,” said Greg Campbell, Senior Managing Director, Acquisitions. “As a result of these healthy, long-term job drivers, the three submarkets where the assets are located are experiencing tremendous demand from a younger population that prefers to rent rather than own.”

According to RealtyTrac, a national real estate information provider, Baltimore is the top market in the United States for renting to Millennials.

Dealmaker: TruAmerica Multifamily Buys Maryland Apartments for $187M

Heading East

TruAmerica is one of the most active investors of multifamily assets in the Western U.S. With more than $6.5 billion in AUM, we are now expanding our proven vertically integrated value add investment platform to include opportunities in select growth markets on the East Coast.

Western U.S.—Greg Campbell | gcampbell@truamerica.com | 949-999-2930 Eastern U.S.—Matt Ferrari | mferrari@truamerica.com | 585-943-9738

Anzio – Atlanta Los Angeles and Washington, D.C. www.truamerica.com

TruAmerica Formally Plants Flag on the East Coast with Office in Washington, DC Metro

TruAmerica Formally Plants Flag on the East Coast with New Office in Washington D.C. Metro

TruAmerica Opens Office in Va. for East Coast Expansion

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rlington, VA (September 8, 2016) — TruAmerica Multifamily, which in June made its first investment east of the Rocky Mountains with the $187 million acquisition of a 1,004-unit apartment portfolio in Baltimore and Annapolis, MD, has taken the next step in its national expansion by opening an East Coast office here under the direction of Matthew R. Ferrari, announced CEO Robert E. Hart.

Since its founding in 2013, the Los Angeles-based value add multifamily investment firm has focused on the acquisition of Class A and Class B apartment communities in the Western U.S. The firm creates value for its investors by unlocking unrealized potential through thoughtful repositioning and renovation and improved operational inefficiencies. One of the most active multifamily investors in the United States, TruAmerica currently manages a portfolio of more than 29,000 units with a market capitalization of approximately $6.2 billion.

While TruAmerica will continue with its Western U.S. investment strategy, the new office gives the firm a local base to support its increasing investment activities in select East Coast growth markets. The move also allows the firm to better serve its significant institutional investor base, which includes insurance companies, pension fund advisers, global real estate investment firms and large family offices.

TruAmerica Opens East Coast Office, Taps New Director

Matthew Ferrari Leaves AvalonBay to Launch TruAmerica’s East Coast Office

“Real estate is a local business and as we expand our investment platform across the United States, it was a logical and inevitable step to have boots on the ground on the East Coast,” said Hart. “Not only will we be able to better identify investment opportunities in key multifamily markets in the Mid-Atlantic, Tri-State area and the Southeast, the new office allows us to further our current relationships here and develop new ones.”

Matthew Ferrari joins TruAmerica as its Eastern U.S. Director of Acquisitions. Ferrari, who has spent his entire career in the property markets, was previously Investments Director for AvalonBay Communities, Inc., out of the real estate investment trust’s Arlington, VA-based headquarters where he oversaw acquisitions and dispositions in the Mid-Atlantic region. He started his career with Archstone shortly after receiving his MBA from Georgetown University.

Joining Ferrari in the new office is David Myers, Director of Capital Improvements, and Benjamin Miller, Director of Asset Management.

Myers, with nearly 15 years of experience in multifamily and commercial construction, was formerly a Project Manager in the Vienna, VA office of Fortune Johnson General Contractors. Over the course of his career, Myers, held similar positions for some of the most well known firms in the industry including Camden, Trammell Crow Residential and AvalonBay. Miller comes to TruAmerica with two decades of real estate investment and operational experience. Most recently he was with Arbor Multifamily Acquisition Company (AMAC) where he served as Senior Vice President and Head of Asset Management, supervising the operation of a 20-property multifamily portfolio in the Northeast, Mid-Atlantic, Southeast and Texas. He started his career in New York City with KPMG in the firm’s Real Estate capital Markets Consulting Group.

TruAmerica Multifamily of Arlington appointed Matthew Ferrari head of the East Coast office

Investcorp and TruAmerica Multifamily Make $98 Million Orlando Portfolio Buy

Investcorp, TruAmerica Buy $98M Orlando Portfolio Joint venture pays $98M for Orlando rentals

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rlando, FL (June 1, 2017) – An Investcorp-TruAmerica Multifamily joint venture has acquired a 708-unit, two-property apartment portfolio in Orlando, FL for $98 million. The purchase of the 360-unit Montevista at Windermere and the 348-unit Highpoint Club marks TruAmerica’s entry into the Southeast property markets.

Apartment complexes near UCF, Millenia mall sell for $98M

Los Angeles-based TruAmerica, one of the 50 largest multifamily owners in the United States only four years after its founding, has been actively seeking investment opportunities in Florida since establishing an East Coast office in the Fall of last year, according to Eastern U.S. Director of Acquisitions Matthew Ferrari.

“Investment sales in Florida have been much slower in the first half of the year which has created a frenetic and competitive market for quality assets,” said Ferrari, who leads TruAmerica’s East Coast operations out of its Arlington, VA-based office. “We were able to leverage our successful track record and relationships to acquire these properties in what was a very intense competition.”

Bahrain’s Investcorp tees up Orlando real estate JV

TruAmerica Venture Moves into Florida; Buys 2 Orlando Properties for $98M

Both Montevista and Highpoint are institutional quality assets each located in desirable neighborhoods with great schools less than 10 miles from Downtown Orlando. Each community features a mix of one-and two-bedroom floor plans and amenities including a resort-style pool, resident clubhouse, dog park and fitness center.

The joint venture plans an extensive value-add renovation program across the portfolio that will include faux wood vinyl flooring, upgraded countertops and backsplashes, new cabinet fronts, light fixtures and microwaves. Improvements also will include upgrades to the fitness centers, clubhouses, signage, landscaping and new paint on all building exteriors. When completed, each community will be better suited to meet the growing demand for quality apartment living by the thousands of people that continue to move to Orlando each year.

More than 60,000 people moved to Orlando last year and the population is expected to grow by 7.7% through 2021, providing a steady flow of potential new renters to the region, according to CBRE Econometric Advisors.

“The Orlando economy has diversified well beyond tourism and is now home to new jobs from a broad group of employment sectors including healthcare, telecom, bio tech, and high technology,” added Brian Kelley, Managing Director with Investcorp’s Real Estate Group, which has now partnered with TruAmerica on eight multifamily investments throughout the United States. “These sectors have fueled the Orlando job engine, which is leading the rest of the nation in employment growth.”

The investment will benefit from seven-year floating rate agency debt financing arranged by Richard Jordan’s Atlanta-based CBRE team.

The Orlando-based team of Shelton Granade, Luke Wickham and Justin Basquill, also with CBRE, marketed the property on behalf of the seller.

TruAmerica, Investcorp JV Acquires Orlando MF Portfolio for $98M

Los Angeles-based investor TruAmerica Multifamily acquired the 368-unit Astor Park

Q

SUMMER

Quarterly

2017 With the tremendous demand

and

need for affordable, quality rental housing for

Upgrading Class B

Apartments: Home Sweet Home For Pension Investors

working class families, there could hardly be a better option for medium-term or long-horizon pension investors than participation in the ac-

Robert Hart TruAmerica Multifamily

quisition and repositioning of older apartment assets in the United States.

n

The changing demographics of the US,

the ongoing affordability challenges and credit qualification standards of home buying, and the increasing barriers to entry in many multifamily markets are fundamentals that will underpin investments in Class B apartments for years to come.

n

To be sure, a widening arc of institutional inves-

tors has concluded that US apartments are a solid investment, and the space is becoming crowded. Since January 2012, institutional investment in US multifamily assets totaled $174.5 billion, according to data and intelligence firm Preqin. In a world bulging with institutional capital, there are few underappreciated investment options anywhere. Therefore, it is important to align with operators who have verifiable track records, have exhibited disciplined acquisition and disposition strategies, and have the ability to hold down costs through in-house asset management and renovation teams. Barring serious macroeconomic undulations in the coming years, well-managed positions in select US apartments should provide rewarding risk-adjusted returns for institutional investors.

50

PREA Quarterly, Summer 2017

PREA Quarterly, Summer 2017

51

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SUMMER

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Quarterly

Exhibit1: 1: US US Homeownership Rates Exhibit Homeownership Rates

It might be unwise to hazard a guess on interest rates going forward, but suffice it to say that 64.7 64.4 64.5% rising rates would undercut homeownership, 64 63.8 6.04% 63.7 63.7 63.7 and the US Federal Reserve appears intent on 63.6 63.5 63.5 63.4 63.5% normalizing interest rates in the near term.

62.9 63.0% For young Americans, the dwindling dream 62.5% of homeownership is even more curtailed; only 62.0% about 35% of adults under age 35 own their 61.5% 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 own homes, and those homebuyers tend to be Source:US US Census Source: Census concentrated away from more-expensive urban housing markets on the coasts (Exhibit 2).

Exhibit 2: Housing Affordability Index (Composite) As more than a few parents can testify, Exhibit 2: Housing Affordability Index (Composite) about four out of every ten young Ameri220 cans between 18 and 34 live at home, the 210 200 highest rate in 75 years, recently reported 190 real estate information service Trulia. While 180 familial bonds may explain some of the 170 stay-at-home youth movement, in general 160 it is the lack of affordable housing that is 150 pushing fledglings back into the nest.

For many young Americans, buying even a condominium may be a step too far, especially if they reside in high-barrier-toSource: ReserveBank Bankof ofSt. St.Louis Louis Source: Federal Federal Reserve entry cities. Millennials—people born beAt the core of rising demand for rental housing in the tween 1982 and 2004—living in such metropolises as US is declining homeownership set into a backdrop of Austin, San Jose, San Diego, or Los Angeles are genan expanding economy and low unemployment (Ex- erally boxed out of the condo or single-family home hibit 1). That scene is framed by a still-growing do- market, as they are unable to save enough funds for a mestic population, especially in metropolitan regions 20% down payment, reported real estate information along the coasts. service Apartment List.

The homeowning outlook for young Americans is unDeclining Homeownership derlined by the fact that 68% of millennial respondents One of the many fallouts of the Great Recession of recently told Apartment List that they had saved less 2008 has been tightened home-mortgage underwrit- than $1,000 for a down payment on a condo or house. ing standards that have since combined with only It is difficult to piece together an outlook that reamodest growth of wages and incomes. sonably projects US homeownership regaining levels The rate of homeownership in the US has steeply of recent previous decades. It appears that the domesdeclined in recent years from a high of nearly 70% in tic rental market has expanded in a secular fashion, 2004 to 63% presently. Whether one regards this de- thus fundamentally altering the landscape for resicline in homeownership as a necessary policy or not, dential real estate investment. the fact remains that homeownership rates are the lowest they have been in 50 years, reaching back to Population Trends Point Property Investors to the US the 1960s. Moreover, this trend toward lower home- In many developed nations, population growth has ownership has persisted for more than a decade de- slowed—in fact, several Far East nations, notably spite historically low interest rates. mainland China and Japan, are already experiencing 64.8

52

January 2017

July 2016

January 2016

July 2015

January 2015

July 2014

January 2014

July 2013

January 2013

Index

65.0%

Exhibit3:3:Percentage Percentage of High-End Apartments of Total Apartments or soon will experience population Exhibit of High-End Apartments of Total Apartments Completed Completed declines, with obvious consequenc- 90% es for housing needs. The popula80% 75% tion of Japan has already peaked; in 67% 70% 2015, the population of Japan was 60% about 127 million, but that figure 60% 46% will decline to about 88 million in 50% the next 50 years if no sharp chang- 40% es in fertility rates occur. Mainland 30% 2012 2013 2014 2015 China’s population will likely peak Source:Yardi YardiMatrix Matrix in another ten years at near 1.4 bil- Source: lion and then begin a long decline, The cities of Los Angeles, New York, and San Jose falling by about one-third by the end of this century.

Similarly, Europe’s total population is expected to today may be harbingers of the future for national remain roughly level through the decades ahead, with rental markets. The median one-bedroom apartment in San Francisco is $2,406 a month, and the one-time scant gains forecast for a graying continent.

In sharp contrast, the US population looks likely farm town of San Jose rents the same apartment for to grow into the foreseeable future by 1% per year or $2,280, reported Apartment List recently. New York more, although the rate is heavily dependent on the City is not far behind at $2,070. A typical one-bednumber of immigrants allowed in the coming decades. room apartment in the Los Angeles market commands That said, the US total population is expected to more than $1,300 a month and is rising rapidly.

Other markets as well are topping $1,000 a month, increase from 325.2 million in mid-2017 to 380.2 million by 2040, assuming current immigration levels of such as Chicago, Denver, Virginia Beach, and Fort about 1.3 million net annually, according to the US Lauderdale. Even Providence, RI, clocks at $999 a month for a one-bedroom unit.

Census Bureau.

The upshot of the Census Bureau outlook is eyeNot surprisingly, such rent levels are overloading brow raising and critical to pension investors: Unlike household budgets. An average renter in Los Angeles the tepid population pictures for much of Europe and in 2014 devoted 47% of household paychecks to the Asia, in just a little more than the next 20 years, the monthly lease, reported UCLA’s Ziman Center for Real US will have to house another 55 million residents, Estate—and since then, Los Angeles area apartment equal to nearly a 17% expansion of its population. rents have been rising at a 4% to 5% annual clip, outThe domestic demand from working class families for pacing income gains, reports Apartment List. residential rentals will be increasing and relentless.

Importantly, when new apartments are added to the inventory, the high cost of development forces develScarcity and Rising Housing Costs opers to build luxury units that cater to high-income As the US population grows and homeownership rates renters, in order to make the projects line up (Exhibit 3). decline, emerging shortages of rental housing are plac- By targeting these “renters by choice,” who represent aping upward pressure on rents in many major metro- proximately 15% of the renter cohort, a large percentage politan regions of the US, most notably in regions with of the rental population is being priced out of the margrowing job bases, such as the West Coast, Mid-Atlan- ket, literally and figuratively “being left out in the cold.” tic, Northeast, and Southeast markets.

It is important to note that this phenomenon is Unless there are incentives and reforms to allow not limited to just the large US metros. Cities such as much greater levels of housing construction in these Kansas City, Phoenix, and Oklahoma City have had key regions, the demand for rentals will likely con- little new apartment construction under way except tinue rising as the US population grows. high-end units, reported RENTCafé Blog.

79%

1Q2016

PREA Quarterly, Summer 2017 PREA Quarterly, Summer 2017

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2017

Exhibit 4: US4:Apartments Annual Asking Rent Growth Exhibit US Apartment Annual Asking Rent Growth 7 5.8

6 Rent Growht

5

4.1

4

3.5

3.5

2012

2013

3.8

3 2 1 0

2014

2015

2016

Source: REIS Source: REIS

Contrary to popular belief, the need for quality, affordable rental housing isn’t limited to minimum-wage workers. The affordable housing crisis affects “people with good jobs who are not poor enough to qualify for subsidized housing, nor rich enough to pay the rising housing prices,” said housing expert Mechele Dickerson of the University of Texas in a Dec. 31, 2016, Wired article titled “The Middle Class Can’t Afford to Live in Cities Anymore.”

Clearly, the need for safe, well-maintained affordable rental housing is greater today than in many decades and perhaps never higher in the entire post-war era.

The Class B Model It is over this widening chasm of affordable rental housing for working class renters that creates a bridge of opportunity for investors. By acquiring Class B product that can benefit from thoughtful and cost-efficient capital improvements, investors can enjoy significant returns on investment while meeting a “double bottom line” goal of providing affordable, quality housing within the reach of the majority of renters in the US. The key is finding assets that are 20% to 40% below replacement cost and sometimes even 50% below what new construction would cost in heavily permitted and zoned, dense city regions. Going in at a steep discount reduces volatility in the portfolio and avoids the risks typically associated with new development, such as high land costs, and other barriers to entry that would require rents above the levels affordable by tenants in the workforce housing demographic.

With the US Federal Reserve eying rate hikes and possibly implementing other credit-crimping moves, 54

PREA Quarterly, Summer 2017

financing generally remains available for multifamily housing through Fannie Mae, Freddie Mac, the FHA, and HUD. This flow of government-enabled financing at below-market rates helps ease a liquidation event into place, even as funding for pure commercial properties may become stickier.

The value-added construct is to capture the economic difference between in-place rents and post-renovated market rents by investing new capital needed to acquire and renovate a property while maintaining the income stream from the project. The strategy typically creates a current cash flow yield ranging from 7% to 10% from the inception of any given project in the portfolio. In fact, about 50% of the return delivered to investors is from cash flow even with a hold period of five years. The significant income contribution to returns illustrates a true value-added approach; while cap rate compression will be a yield enhancer, a favorable cap rate isn’t required at exit to generate competitive returns, and the durable income stream provides downside protection against rising interest rates.

Conclusion Even the moderate growth of the US economy since the Great Recession has been generating millions of jobs and thus an expanding population of potential renters.

Indeed, from a trough of 130.1 million employed in the US in 2010, 146.1 million were employed in May 2017, up 16 million. In many regions, employment is growing in the face of scant new housing production; for example, in Los Angeles County, about 500,000 net new jobs have been created since 2010, but new housing production across the entire county is running around 20,000 units annually.

The problem of regional housing scarcity appears nearly impervious to practical resolution, certainly at the national level. Tight regional housing supplies are exacerbated by a growing national economy but are largely the result of local property zoning and other development stipulations that appear deeply embedded in regional politics. n Robert Hart is Chief Executive Officer of TruAmerica Multifamily.

Legends at Lake Mary – Orlando, FL

Blackstone Real Estate Income Trust Teams with TruAmerica in $126 Million Portfolio Buy

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os Angeles, CA (January 4, 2018) – TruAmerica Multifamily, in its first joint venture partnership with an affiliate of Blackstone Real Estate Income Trust, Inc. (“Blackstone”), has acquired a 635-unit multifamily portfolio with assets located in the Denver and Seattle metros, in a transaction valued at $126.5 million.

TruAmerica acquires multifamily communities in Denver and Orlando in separate transactions totaling $126 million

Joint venture acquires Thornton apartment complex

Blackstone is the latest of 16 institutional capital partners to joint venture with TruAmerica in the past four-and-half years.

“Blackstone has made a significant commitment to the Class B value-add multifamily space and together we have long been looking for the appropriate investment in which to partner,” said Noah Hochman, Senior Managing Director of Capital Markets for TruAmerica. “We look forward to finding new opportunities to invest together again soon.”

The portfolio includes two 300+ unit garden-style apartment communities that have seen little or no renovation since they were constructed in 1984 and 1991. At a collective occupancy of approximately 94%, the two properties represent an excellent investment that features a combination of strong current income and tremendous upside growth potential, according to TruAmerica Director of Acquisitions Zach Rivas.

TruAmerica Buys Everett’s Walden Pond Apartments for $67.7MM

TruAmerica, Blackstone Team Up to Buy Denver, Seattle Apartments

“We are enthused to be investing once again in Seattle and Denver, two of the strongest multifamily markets in the western U.S.,” said Rivas. “The value-add opportunities available at each property are highly attractive and will enable us to take advantage of the terrific fundamentals found in each asset’s respective submarket.”

Montair is a 319-unit garden style community featuring a mix of one- and two-bedroom floorplans on a low-density 13-acre site at 8901 Grant Street in Thornton, CO, the core of metro Denver’s thriving Northern suburbs. Montair is located less than two miles from the soon-to-be completed light rail station at Original Thornton and 88th, which will provide easy access to Downtown Denver. The property is also easily commutable to Denver’s major employment hubs including the I-25 Corridor, Interlocken Tech Business Park and the Health One North Suburban Medical Center.

Walden Pond is a 316-unit golf course apartment community comprising a diverse mix of one-, two- and three-bedroom apartment homes at 9990 12th Avenue West in Everett, WA. The large three-bedroom floorplans, which average approximately 1,300 square feet, are particularly attractive to families, who are attracted to the highly rated Mukilteo School District. The property also benefits from its location at the north end of Seattle’s High Tech Corridor, which provides an ongoing and expanding source of high paying technology and aerospace jobs.

With the acquisition of Montair and Walden Pond, TruAmerica and its partners now own and operate 14 properties totaling 2,892 units throughout Washington and six properties totaling more than 2,643 units in the Denver metro.

As Freddie Mac Select Sponsors, the joint venture received attractive acquisition financing through Freddie Mac’s seven-year fixed-rate program, which was arranged by Troy Tegler of CBRE.

Blackstone, TruAmerica buy more multi-family apartments Blackstone JV buys apartment units in Denver, Seattle for $127M

The Leadership Issue | Cover Story

IN THE BUSINESS

The The BestBest BossBoss

How easy is it to identify a “best boss” anyway? We at Real Estate Forum had the experience of finding that out as we shifted through numerous nomination forms that contained shining examples of leadership from colleagues, employees and team members. Surprisingly, it was a hard decision to make. We say ‘surprisingly’ because statistically speaking, best bosses—or put another way, good leaders—are hard to come by. For instance, only 14% of CEOs have the leadership talent to execute on their strategy, according to one survey. The effect this lack of leadership talent has on a company and its workers cannot be overstated. According to another estimate, there is a 50% difference in the impact that a top performing leader has compared with an average performing one.

Perhaps it is different in the commercial real estate space. Perhaps the rigor needed to navigate our industry and the ease at which it is possible to fail intuitively attracts the best of the best. To borrow from a well known expression, if you can make it in CRE you can make it anywhere.

What is perhaps most astounding about the leaders you will read about in the following pages is the way they make it seem so easy. Juggling multibillion dollar books of business, implementing vision statements and strategic goals and they still always seem to know the name of even the lowliest employee in the office. Smarts, intuition, honor, skill and charisma. You can read about it over the next few pages.

eal estate investment industry veteran Robertindustry E. Hart veteran is cur- Robert E. Hart is cureal estate investment rently the founder, CEO and TruAmerica rently thepresident founder,ofCEO and president of TruAmerica Multifamily, which hasMultifamily, rapidly become nation’s whichone hasthe rapidly become one the nation’s largest investors in apartment communities with $8.3communities billion of with $8.3 billion of largest investors in apartment assets under management. dig amanagement. little deeper and you awill seedeeper and you will see assetsBut under But dig little that Hart brings much more to the tablemuch than more just histopresent leadthat Hart brings the table than just his present leadership creds. ership creds.

Prior to founding TruAmerica Hart earned industry Hart earned industry Prior toMultifamily, founding TruAmerica Multifamily, accolades as the transformational CEOtransformational from 2000 to 2013 accolades as the CEOoffrom 2000 to 2013 of Kennedy Wilson Multifamily Management Group, aManagement part of the Group, a part of the Kennedy Wilson Multifamily NYSE-listed Kennedy Wilson globalKennedy real-estate concern.

Hart envi- concern. Hart enviNYSE-listed Wilson global real-estate sioned and launched Kennedy Wilson’s value-add apartment sioned and launched Kennedy Wilson’sportvalue-add apartment portfolio strategy that profitably acquiredthat andprofitably disposedacquired of more and thandisposed of more than folio strategy 20,000 units in 13 years,20,000 with aunits total in transaction valueaof more than 13 years, with total transaction value of more than $4.5 billion. Kennedy Wilson went public in 2009 withwent a market $4.5 billion.

Kennedy Wilson publiccap in 2009 with a market cap of $400 million, and inof2016 valuation of reached $2.4 billion, a $400reached million,a and in 2016 a valuation of $2.4 billion, a major component of which is its holdings of residences. major component of multifamily which is its holdings of multifamily residences.

Then came July 2013Then whencame HartJuly and2013 The when Guardian HartLife and The Guardian Life Insurance Co. of America foundedCo. TrueAmerica a joint venture.

Insurance of America as founded TrueAmerica as a joint venture.

Today the company’s portfolio of approximately 39,000ofunits is Today the company’s portfolio approximately 39,000 units is located in prime locations located throughout in prime locations throughout Northern and Southern Northern and Southern California, Washington, California, Washington, Oregon, Colorado, Oregon, Arizona, Colorado, Arizona, Nevada, Utah, Maryland, Florida and Maryland, Florida and Nevada, Utah, Georgia.

Georgia.

Along this journey he Along has developed strong this journey he has developed strong ties with his colleaguesties andwith employees for many his colleagues andreaemployees for many reasons. Some of these reasons dueoftothese his personality—he’s sons.are Some reasons are due to his personality—he’s a witty person and his team affectionately this wit “Bobisms”—calls this wit “Bobisms”— a witty person andcalls his team affectionately and to his charisma. His colleagues agree, for thatagree, whenfor example, that when and to his charisma.

Hisexample, colleagues Hart enters a room, everyone not only knows it, but also Hart enters a room, everyone not gravitates only knows it, but also gravitates toward him. toward him.

His leadership abilitiesHis areleadership renown. One employee says Hart abilities are renown.

One employee says Hart perfectly fits the description of afits great whichof this employee perfectly theleader, description a great leader, which this employee says is someone that is able tosomeone guide a group people (sucha group as, in of people (such as, in says is that isofable to guide Hart’s case, the senior team) identify what they want (such aswhat the they want (such as the Hart’sto case, the senior team) to identify senior team’s needs forsenior their respective departments) and howdepartments) to team’s needs for their respective and how to get it, all the while keeping goals and objectives of goals the and objectives of the get it,the all overall the while keeping the overall firm first in their initiatives. firm first in their initiatives.

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Robert Hart This ideal leader, per the employee, then influences that group without obvious micro-managing of the process, to take collaborative and strategic executable action to achieve the firm’s desired outcomes.

A good leader also knows how to deal with risk. The risk that Hart takes is measured, strategic and almost always creative, genius and out of the box thinking, a colleague says. “He is a conscious and responsible fiduciary steward of his partner’s investment and when he shakes their hand, signs his name to the partnership agreement, his expectations of his team is that they represent exactly what his word said he would. No exceptions.”

For all of these reasons, Hart is highly sought after to speak at industry and industry affiliate events. One team member has observed that Hart can be the last speaker on a panel where the other panelists all in theory agree with each other on whatever topic, yet if Hart differs in his opinion, he states it—albeit graciously—but the outcome is always the same in these instances: “The other panelists as well as the audience lean in, take note, and change their own opinions to his,” the team member says.

Hart is also recognized for his philanthropy. Case in point, a very special award from City of Hope. The Spirit of Life Award is given to individuals who exemplify the ideals and values that have guided City of Hope for a century, and whose professional and humanitarian accomplishments are worthy of celebration. Hart attacks fundraising for his charitable endeavors the same way he does business. He has held weekly fundraising meetings with close business associates, some of his senior team and other close colleagues.

Hart comes from very humble beginnings. He started working when he was 14 years old. Through hard work and a tenacious attitude to succeed, he is the quintessential self-made man.

Colleagues say that his story, which he does not share readily, is inspirational as is his top rule in life, which is to never fail. “He will not allow himself to—he takes the responsibility of other people’s trust in him to an extreme level,” says one person.

When asked what has made him successful Hart’s answers only vary slightly. Either it is an answer that pays homage to his team— the people he trusts, hand selected and counts on. Or, a favorite answer is “You can do good while doing well. Making a profit and investing in our community are not mutually exclusive goals.”

5/24/2019 9:12:07 PM

TruAmerica/Oaktree Joint Venture Acquire Phoenix and Las Vegas Communities for $142 Million DEAL WATCH: Henderson apartment complex sells for $67M

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os Angeles, CA (May 29, 2018) – TruAmerica Multifamily, in partnership with funds managed

by Oaktree Capital Management, LP (“Oaktree”) has acquired two multifamily properties in Phoenix, AZ and Las Vegas, NV in separate transactions totaling $142.1 million.

Dealmaker: TruAmerica Acquires Two Multifamily Assets for $142M

“We have been cultivating a relationship with Oaktree for some time, and these two acquisitions are the result of our shared vision,” said Noah Hochman, Senior Managing Director of Capital Markets for TruAmerica. “It was a pleasure to work side-by-side with their team, and we plan to pursue other investments together in the near future.”

Galleria Palms, a 424-unit multifamily property in the Phoenix submarket of Tempe, was purchased for $75.1 million. Built in 1997, it is one of the few low-density, garden-style communities in Tempe.

The property consists of one- to three-bedroom units on a 27-acre site. All units feature upscale amenities like full-size washers/dryers and walk-in closets. Community grounds include two swimming pools and spas, clubhouse and fitness center and other distinctive facilities. Served by two freeways, U.S. 60 and I-10, Galleria Palms’ central location puts residents within a 20-minute drive of more than 500,000 jobs.

Galleria Palms is the fifth asset in the Phoenix metro for TruAmerica, whose local portfolio now counts just under 2,000 units.

TruAmerica and Oaktree also acquired Aviata, a 456-unit multifamily property in the Las Vegas submarket of Henderson/Paradise Valley, in an off-market transaction for $67 million. Built in 1998, Aviata offers a mix of one- and two-bedroom units, with amenities including nine-foot ceilings, central heating and air conditioning full-size washers/dryers, and walk-in closets. In addition, the property’s grounds are enhanced by some of the most lush and dense landscaping of any community in the Las Vegas Valley.

TruAmerica, Oaktree JV Acquire MF’s for $142M

TruAmerica and Oaktree Buy Two Multifamily Properties for $142.1 Million

Aviata is TruAmerica’s eighth investment in Las Vegas and increases the company’s portfolio in the region to 3,251 units.

“We like the long-term outlook for Phoenix and Las Vegas based upon positive demographics and the high demand for rental housing,” added Mark Jacobs, Managing Director of Oaktree. “As we continue to expand our income-producing, core-plus business through strategic relationships, we’re pleased to be partnering with an established operating partner like TruAmerica.”

“With our existing influence in the market, there is an opportunity to achieve synergy through economies of scale and leveraging existing operational experience,” said Zach Rivas, Director of Acquisitions for TruAmerica.

Under the direction of Amir Eshkol, Senior Managing Director of Capital Improvements, TruAmerica will undertake a significant capital improvement program on both properties, including upgrading all unit interiors, renovating all community amenities including pool areas and clubhouses, as well as refreshing exteriors and landscaping to enhance the curb appeal.

Oaktree, TruAmerica acquire multifamily portfolio for $142M

TruAmerica Multifamily Makes Las Vegas History with $152 million Acquisition of Apartment Community

Las Vegas apartment complex fetches highest price in Nevada history

Transaction activity for TruAmerica tops $880 million in 2019-to-date

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os Angeles, CA (June 10, 2019) — In the largest single multifamily asset transaction in Nevada history, TruAmerica, in joint venture with an institutional capital partner, has acquired Allanza at the Lakes (Allanza), an 896-unit multifamily community in Las Vegas, NV for $152 million.

With the acquisition, TruAmerica has started 2019 with almost $900 million in transaction activity including the acquisition of approximately 3,700 units in Florida, Georgia, Nevada and Colorado.

TruAmerica Multifamily Makes Las Vegas History with $152M MF Buy

“We continue to fine tune our portfolio building scale where we have a significant presence like Las Vegas and expanding our national footprint into new markets such as Atlanta,” said TruAmerica Founder and CEO Robert E. Hart.

With 896 units, Allanza is the fourth largest apartment building in Nevada and the largest acquisition by unit-size in the six-year history of the Los Angeles-based real estate investment firm.

Since entering the Las Vegas market in 2016, TruAmerica, alongside its institutional partners, has significantly grown its local portfolio through selective acquisitions. TruAmerica now owns approximately 4,000 units in Nevada, making it one of the largest multifamily landlords in the state.

Las Vegas exhibits all of the fundamental indicators of apartment appreciation making it a market that TruAmerica believes will continue to experience long-term investment upside, according TruAmerica Director of Acquisitions Zach Rivas.

“Las Vegas maintains itself as one the lowest income-to-rent ratios MSA’s in the country making renting a very attractive proposition for Las Vegas residents,” Rivas said. “While rent growth in other markets may be slowing, Las Vegas remains strong.”

TruAmerica Closes Biggest Deal on Record in Nevada

Built in 1986, Allanza features a mix of one-, two- and three-bedroom homes in 56, two-story buildings on a 40-acre site. Located at 8600 Starboard Drive the property benefits from a “Main and Main” location in the highly desirable Lakes neighborhood in Summerlin, according to Rivas.

In addition, the population within a five-mile radius of Allanza is expected to grow by nine percent over the next four years, according to Costar.

Allanza offers TruAmerica strong value-add upside through the implementation of an institutional quality management strategy along with a significant capital improvement program to fully upgrade the interiors of all homes, which will be executed as leases expire. To enhance the property’s overall curb appeal, plans also call for targeted improvements to the buildings’ exterior and community areas around the property, which includes five swimming pools, two fitness centers, a pet spa, picnic areas and a playground.

Senior Vice President Phillip Weigand and Vice President Thomas Olivetti in Northmarq’s Las Vegas office marketed the property for sale on behalf of the seller.

TruAmerica Buys $152M Las Vegas Property in Record Deal