By Jon Peterson
Sares Regis Multifamily Funds, with offices in Newport Beach and San Mateo, has set the West Coast among its targeted markets for its new commingled fund going by the name of Sares Regis Multifamily Value Add Fund IV. The fund is looking invest in areas of Northern and Southern California, Portland and Seattle. The other targeted markets for the fund will include Phoenix, Las Vegas, Salt Lake City, Denver and Dallas. This information was stated in a board meeting document for the San Diego City Employees’ Retirement System.
The real estate fund manager is still marketing the commingled fund to investors. San Diego City is planning to approve a $25 million commitment into the fund. The amount of capital raised for the fund so far is $522 million. This has placed the capital raise past its original targeted raise of $500 million. Sares Regis will be placing a co-investment into the fund of 1.5 percent of the total commitments, or up to $10 million.
The main investment theme for the commingled fund is to acquire, renovate and enhance Class B multifamily properties in rapidly growing and supply-constrained submarkets in the areas of its targeted markets. It will be looking for a mixture of garden-style, mid-rise or high-rise properties that are generally 10 years old or more and vary in size from 75 to 500 units. Only existing properties will be considered for the fund and no development opportunities will be included in its investment strategy.
All of the properties in the fund need to allow the manager to create value in the asset going forward. Sares Regis will be looking for assets that are under-managed, are in need of cosmetic or physical updating, are poorly capitalized, have deferred maintenance, have a distressed owner or capital structure or have a curable construction or structural deficiency.
Fund IV will be seeking properties that can produce gross IRRs of 13 percent to 16 percent. The aggregate leverage for the commingled fund will be capped at 65 percent loan-to-value. Sares Regis is planning that there will be a total of 15 to 17 properties purchased for the fund with an anticipated investment size of approximately $30 million of equity per investment.
San Diego City Employees is planning its commitment to fill a hole within its real estate portfolio from a strategy, property type and geography perspective, as written by the investor in a board meeting document.
Prior to the commitment, the pension fund had invested 27.3 percent of its real estate portfolio invested in the non-core sector. Once the commitment is approved, it would be increased to 29.1 percent versus its investment policy of 30 percent.
Through March of this year, the pension fund had 25 percent of its real estate portfolio invested in apartments compared to 29 percent for its benchmark, the NFI-ODCE Index. San Diego City was also underweighted to assets in the West with roughly 41 percent of its portfolio located there versus 45 percent, which is a benchmark in the industry.