By Jon Peterson
Institutional capital has been very interested in multifamily housing, and by all indications it appears that this trend will continue into the next cycle, as well. A Los Angeles-based investment and development firm, Cityview Real Estate Partners, has set a targeted capital raise of $400 million with a hard cap of $500 million for its multifamily and mixed-use fund Cityview Real Estate Partners VII, as written in a board meeting document for the Connecticut Retirement Plans and Trust Funds.
The commingled fund is expected to have an allocation of around 50 percent of the portfolio in California. This would include the San Francisco Bay Area and Los Angeles, Orange and San Diego Counties. Potential other targeted markets on the West Coast would include the Pacific Northwest markets of Portland and Seattle.
Cityview is now marketing the fund for a second time. According to a board meeting document written by NEPC, the real estate consultant for the Connecticut pension fund, Cityview had begun marketing Fund VII during the first half of 2020 and had initially planned to hold a first close in the third quarter of 2020. Citing the impacts of COVID-19, the manager largely suspended these fundraising efforts. The manager has commenced marketing the fund this year, and it presently expects to hold a first close around year-end with anticipated investor commitments of around $125 million. Connecticut’s pension fund, which is a new investor, is considering a commitment of up to $100 million.
Cityview did not respond to a phone call seeking comment for this story.
The commingled fund will be investing in multifamily and mixed-use assets that have a multi-family component. Around 60 percent of the fund will be spent to acquire existing properties. In some cases, the deals will only need light rehabilitation, such as strategic capital improvements to achieve desired returns on cost. The heavy value-add deals for the fund will be properties that are needing intensive unit upgrades and exterior renovations and upgrades to the building systems and infrastructure.
Around 40 percent of the portfolio is projected to be new development opportunities in emerging submarkets with strong fundamentals. The development of new properties is projected to result in the fund achieving returns that are 125 to 150 basis point spread to current cap rates on the purchase of existing properties.
The purchase of the existing assets will be the acquisition of either Class B or C assets that are considered to be in A locations, which would reduce the asset’s risk. The targeted returns for the fund are net IRRs of at least 13 percent with leverage capped at 65 percent on a loan-to-value basis at the portfolio-wide basis.
There should be a total of 12 to 18 investments made in total for Partners VII. The deals size would be where the commingled fund makes equity investments in the range of $25 million to $40 million per transaction.
