Can non-US capital benefit from lucrative US Multifamily real estate without establishing an operating platform over there? Ask Zach Mneimneh (pictured, below right).
What opportunities are there in the US real estate market at the moment? US commercial real estate comprises four primary sectors: Industrial, Multifamily (i.e. rental apartment communities), Office, & Retail. Over the past 30 years, the Multifamily (MF) sector has generated the highest risk-adjusted return of all primary sectors. For long-term investors it is the most interesting sector, which is the reason we have focused on it.
Since 2010 the MF sector has been benefitting from a confluence of favorable macro fundamentals (some of which are unrelated to the Great Recession) which has led to its superior performance.
How have real estate investments in the US been performing recently? Since the onset of the Great Recession in 2008, different components of the US market have moved along different paths. Geographically, global gateway cities have remained in high demand, in contrast to many secondary or tertiary cities. Sector- wise, you have MF doing very well across most markets, in sharp contrast to the office sector. All in all, though, there is a prevailing sentiment that in 2012 a corner was turned, both in terms of the overall US economy and the real estate industry.
Worthwhile investment opportunities are engendered by a positive confluence of geography & sector performance. By far the best performing sector has been MF, which was the first sector to recover back in 2010, and is now in full-growth mode.
How does POLARIS connect international capital to US opportunities? On the one hand we work with a select group of regional & national US investment ‘sponsors’, which are apartment operators with portfolios spanning several thousand units under management. They have their fingers on the pulse of the MF industry and are the source of our opportunities pipeline. On the other hand, we work with international capital sources (mostly family offices) who wish to benefit from US opportunities without establishing operating platforms in the country.
We are the conduit and filter between both sides of this equation. We are the gatekeepers for the investors, and ensure that they are exposed to only those opportunities that fit their criteria and are backed by best-in-class sponsors.
What are the benefits of using firms such as POLARIS rather than investing directly in US properties? We don’t offer properties per se; that would not be a particularly valuable proposition to investors, and there are tons of brokers who do that. We offer complete opportunities, which comprise the property & its sponsor (i.e. its operator), which is where the value to investors rests.
The property per se is owned by a Limited Partnership, whose GP is the sponsor, and whose LP is the investor. This is uniquely valuable to non-US investors: they control the investment, but are not responsible for any operations and need not establish an operating platform in the US.
What is the minimum that families and individuals are required to invest and what kind of returns can they expect? For existing assets, the two primarily profiles are Stabilized & Value-Add. The latter has a higher risk-return profile and can expect to generate cash-on-cash in the lower-teens, and IRR north of 20%. For development projects, the IRR is naturally higher - north of 25%, sometimes even north of 30%.
The average equity ticket per opportunity is between four and ten million dollars.
Does the client retain control over the investment? Of course. The investor controls all major decisions, including approval of yearly budgets, major improvements, debt, & disposition. Therein lies the high value of this model for the investor: he controls the investment but need not worry about its daily operations.
Polaris is a Miami, Florida-based boutique firm that connects international capital with U.S. realty opportunities.
Contact Zach Mneimneh