By Jon Peterson
Chicago-based Waterton Associates has set up its first ever regional office in San Francisco as it hopes to be a more active player on the West Coast of investing in apartments and hotels. The new office in San Francisco is located at 201 Spear Street.
“Our plan with this new regional office is to hopefully lead to us finding more investment opportunities on the West Coast from San Diego to Seattle. I think it’s important to have a local office so that we can communicate more with other property owners and brokers in the marketplace to find out what’s really going on,” says Rick Hurd, chief investment officer for Waterton. He works out of the Chicago office.
Waterton has moved two of its acquisition people in the Chicago office to work out of the new office in San Francisco. One is Peter Kuzma, a vice president of apartment acquisitions. The other is Nir Liebling, head of hotel acquisitions for the company. Both of these people report to Hurd.
The apartment acquisitions for Waterton are done through its commingled funds or joint ventures that it has. The hotel investments are done through a subsidiary of Waterton known as Ultima Hospitality. The capital source for the hotels investments are joint ventures that are established with opportunity funds managed by other companies.
Waterton just closed on the capital raise for its latest apartment commingled fund, Waterton Residential Property Venture XII. The manager raised $511 million of equity for the fund from 12 limited partners. The institutional investors were represented by a number of pension funds in the U.S. These included the Oregon Public Employees Retirement Fund and Orange County Employees Retirement System. In the fund, Waterton had its first-ever non-US investors. This included a Japanese Financial Institution and a Middle East insurance company.
Waterton placed $20 million of its own capital into the commingled fund as a co-investment. The leverage component of the fund is 65 percent, and the targeted returns for the investors are projected to be around 13 percent net IRR. The fund looks to find value-add apartments on a nationwide basis.
The real estate manager has already invested and allocated 65 percent of the fund in either closed or allocated transactions. Two of these assets are in Seattle. Waterton is currently looking at a third deal in Issaquah, also in the Puget Sound region. Some of the other markets where it has acquired assets include Los Angeles, Atlanta, Houston, Chicago and Raleigh. It has been trying to find assets in the greater San Francisco Bay Area, as well. It has looked at deals in Hayward and Oakland, buy it hasn’t closed any deals in the region for the commingled fund.
“San Francisco is a very pricey and competitive market, which makes it very difficult for us to find properties to buy and still reach the targeted returns for our fund,” said Hurd. Seattle is a market he likes very much, but not necessarily in the Central Business District. “We like the areas that are maybe 20 miles north of downtown where the pricing is a little more attractive and there is still strong job growth led by Boeing and technology companies,” said Hurd.
Waterton as a buyer is quite selective. It typically looks at 400 deals on an annual basis and it ends up underwriting 200 transactions. It might end of closing on 8 to 10 assets each year.