SAN FRANCISCO, CA - Piping Rock Partners Inc. announced today that it has teamed up with a San Francisco Bay Area family office to pursue a secondary and tertiary market apartment investment strategy in the Midwest. The joint venture has closed its first acquisition, a 120-unit Class B apartment property located in Columbus, Indiana.
Source: Piping Rock Partners
"Pursuing smaller acquisitions in tertiary Midwestern markets is an unusual strategy for a family office of this size and sophistication," noted Chris Germain, President of Piping Rock Partners, "but they saw an opportunity to capture above-market yields, and the joint venture structure we offered was very investor-friendly."
The deal structure was attractive in a number of ways, Germain said, but most notably because Piping Rock's upfront cash fees at closing were less than 20 basis points of the total purchase price. In addition, the majority of Piping Rock's compensation is deeply subordinated to the performance of the investment, and that gave investors a considerable amount of comfort.
The deal was so investor-friendly, in fact, that Piping Rock's majority investor provided additional collateral in order to secure more competitive financing. The debt, which was privately placed with the majority investor's federally chartered banking affiliate, consisted of a first and second mortgage totaling 90% loan to cost, with a blended interest rate below 5%. Both mortgages can be fully pre-paid at any time. The financing was optimized to fit the partnership's investment strategy, which includes a number of different exit scenarios.
"Fannie Mae and Freddie Mac are practically the only game in town when it comes to financing apartments these days," Germain said, "but our partner believed in this deal, and we were able to do much better." Fannie Mae will generally not exceed 80% loan to cost in the Midwest, Germain added, and few lenders will provide such flexible pre-payment terms.
"The financing package was very creative," said Eric Taylor of Hendricks & Partners, which represented the seller in the transaction, "and the fact that sophisticated, institutional capital is returning to these markets is another sign that the recovery is real." Taylor added that there were a number of complexities involved in the sale, but Piping Rock closed on time and as promised. "They were very focused, and that meant reliable execution for our client. We would definitely work with Chris again."
The property was already generating strong cash flow from operations when it was acquired, but Piping Rock has enhanced the property's financial performance with an interior and exterior upgrade program. The upgrades are creating strong rent growth, and the joint venture's return on equity is exceeding the pro-forma.
Piping Rock Partners Inc. provides real estate investment management and advisory services to family offices, Registered Investment Advisors and fee-only financial planners. The firm is actively acquiring opportunity-driven, value-added apartment communities in select markets, with a current focus on strong submarkets markets in the Midwest. The firm's principals have completed almost $4 billion in commercial real estate debt and equity financings, including $3 billion in multi-family mortgage financing.