The Metrics of Multifamily Investment
- Oct 23, 2014
By Jessica Fiur, Senior Editor
Chicago—Magellan Development Group recently launched Magellan Investment Partners, which will invest, acquire and renovate multifamily communities nationally. The new company is being led by industry veterans. Marc Swerdlow, former president and general counsel at Waterton Associates, will be principal and chief operating officer; David Levin, founder of Levin Realty Advisors, will be principal and chief investment officer; and David Carlins, president of Magellan Development Group, will be principal and chief development officer.
MHN recently had the chance to sit down with Swerdlow and Levin about the focus of Magellan Investment Partners and how they are going to differentiate the company.
MHN: Tell me about Magellan Investment Partners. What makes it different?
Levin: Marc, David Carlins and I formed Magellan Investment Partners to capture a core plus value-add strategy where we are pursuing assets that are late ‘90s to 2007 vintage in markets that we’ve selected based upon various metrics that we track, as well as location of existing Magellan developments that are currently going on. We look for assets that are within submarkets where there are newer properties that have been built in the last year or two that demonstrated a rent delta upwards of $200-$300. Our strategy is to renovate to within 70 to 75 percent of that top-level rent, so that we’re not effectively at the top of the market, and we’re able to “ski in the wake” of the top guys.
MHN: What are some of the metrics you track?
Levin: We primarily are tracking job growth, permit activity, population growth and, to the extent available, drilling down to Millennial growth in that number, as we do agree that that demographic is more transient and less likely to be owning their housing and more likely to be renting their housing. We believe that there are markets in the country now that are probably a little overheated on the supply side, and we intend to steer clear from there. We also believe that all major areas have specified some markets within them that demonstrate certain aspects that we’re attracted to—great school districts, assets with large floor plans and attached garages, locations that tend to be aligned with healthcare growth or tech growth.
MHN: What markets do you think are oversaturated now? What are you staying away from?
Levin: We believe that certain pockets in the Carolinas—when you look at the supply side compared to the job side—are giving us concerns and we’ve hit pause and not targeted them. Raleigh and Charlotte are two of them. We are not looking in Atlanta.
Swerdlow: Also Seattle and D.C. Those are markets where you’ve seen lots of new units coming on, but those aren’t markets that we’re focused on.
Levin: We’re focusing on Texas, and Texas has a fairly strong pipeline that it’s delivering and that it has on a permit basis. However, we believe when you look at the job-growth story in those markets, the absorption projections are very strong, and as I mentioned before, between Marc, David Carlins and myself, we have 75 years of experience in this, we’ve bought and sold in those markets and we know where there are strong submarkets that tend to be a little more high-barrier.
MHN: What experience are you bringing from your previous jobs?
Swerdlow: I initially started my career at Heitman [Advisory Corporation], so for the 11 years that I was working with Heitman I had a lot of interaction with institutional investors dealing with all types of real estate including multifamily. Then I spent three years at GE Capital where I was structuring joint-venture transactions and debt transactions. My most recent 13 years was at Waterton Associates where I helped grow it from 7,000 units to over 21,000 units and built a relationship with institutional investors. So I have a lot of background with interacting with institutional investors and raising funds. I’m a lawyer so I’ve done a lot with structuring and closing transactions, and I’ve really helped build Waterton to where it is today. I bring organizational and transactional experience to the table.
Levin: For 14 years, I split it almost evenly between two companies, one of which was an advisor to a variety of pension-fund clients doing true, core institutional acquisition work. The other was a real entrepreneurial, vertically integrated platform where we would go in and mostly do renovations—sometimes very heavy lifting renovations—to return a more opportunistic-type yield expectations. In 2004 I formed my own company, Levin Realty Advisors. For 10 years, we did a combination of institutional acquisition and value add. In total, that portfolio within my company was $650 million at peak, a little more than 6,000 units of which we almost disposed of all of our assets over the past 18 months. That led to a logical partnership. Marc, David and I have all known each other, both through business and socially, for a number of years, and it was really a unique fit for all of us in that we bring a different set of skills to the table. Marc has a ton of institutional experience through his background, and I have primarily been a transactional acquisition-suited individual through the multifamily space. With Marc’s exit from Waterton and my dissolving of sales of assets in my company, timing-wise it was a perfect time for us to partner up. David’s firm, being tremendously successful on the development front did not have any transactional acquisition advisory platform to it, so it was a logical fit for Magellan as well.
MHN: Sounds like you have every area covered!
Swerdlow: It means we can all be right! Magellan Development brings such a great brand to what we’re trying to accomplish, and the fact that they didn’t have an investment platform made it a perfect combination. Magellan, who really within the Chicago market is well known because of what they’ve been able to do, in the past 18 months has been expanding into other markets, markets that we’re looking at such as Minneapolis and Nashville. This is a natural expansion of the Magellan brand. As they go broader and develop, we’re able to expand even more by bringing in institutional investors and looking at acquisitions in similar markets. The timing could not have been more perfect and we couldn’t have partnered up with a better organization that is so regarded within multifamily development.