Brian Kelley: Investcorp’s Acquisition Strategy

By Adrian Maties, Associate Editor

Investcorp, a Bahrain-listed alternative investment fund, recently expanded its U.S. residential portfolio with the acquisition of four properties in the metropolitan areas of Washington, D.C., Orlando, San Diego and Baltimore. The purchase price was  approximately $300 million.

The four assets are:

• The Arcadian, a garden-style townhome property in Silver Spring, Md.;
• The Orion on Orpington, a 624-bed student housing property in Orlando;
• The Waterleaf Apartment Complex, a 456-unit multifamily apartment complex in a northern suburb of San Diego;
• The Fairways at Towson, an 828-unit apartment community in the Baltimore metro area.

Together, the four properties total more than 2.1 million square feet of space, with approximately 1,900 multifamily and student housing units. According to Investcorp, they have an average occupancy of 96 percent.

Investcorp’s real estate group has been very active in the U.S. in the past 12 months, purchasing properties collectively valued at more than $850 million.

Brian Kelley, principal of Investcorp’s real estate investment group, spoke with us about his company’s future plans for the U.S. and the four newly acquired properties.

Q: Investcorp has spent nearly $1 billion in the past 12 months to purchase properties in the U.S. What’s your feeling about the current state of the U.S. real estate market?

A: We still see many opportunities in the U.S. real estate market, with improving fundamentals as well as creative and flexible capital available for financing. The market currently offers attractive yield potential relative to other investment classes.

Q: What drove your company to acquire residential properties in Washington, D.C., Orlando, San Diego and Baltimore?

A: These properties are consistent with Investcorp’s longstanding strategy of targeting properties in the top 30 to 40 markets in the U.S., with stable cash flows as well as some upside potential. Investcorp underwrites from the bottom up, which is to say we start with interesting property-level dynamics before going on to assess larger market features. That said, we consistently look for deals in 30 or so of the largest metro areas, including the four represented in this portfolio. These particular markets have such features as good schools; relatively high costs of area housing; income, job and population growth; and a diversity of employment drivers.

Q: What are your plans for the four residential properties?

A: With each of these properties, we are implementing light value-add and upgrade programs: interior renovations, common-area amenity upgrades, etc. We also plan to address some deferred maintenance issues. Consistent with our strategy, each of the properties is highly occupied, with stable cash flows.

Q: Investcorp purchased the four properties in joint ventures with different partners. Is this part of your expansion strategy?

A: We generally choose to co-invest with local operating partners who can provide local area expertise and hands-on day-to-day oversight of the properties. That said, we are fully staffed with asset management professionals who have the experience and resources to manage properties on a direct basis, as necessary, or in close cooperation with our operating partners. All four of these transactions include operating partners who have co-invested in the deals and thus share an alignment of interest with Investcorp and its investors.

Q: Do you plan to acquire any other properties in the near future?

A: We are active in most major (top 30-40) U.S. metro areas and are actively seeking new opportunities. A consistent theme in most of our real estate investments is strong levels of current yield.

Photo credit: Investcorp