While late-cycle uncertainty gives some investors pause, multifamily and the Sunbelt are attracting more and more capital. Blue Atlantic Partners Fund III, created in August 2019 with those markets in mind, recently entered into an investment partnership with Wells Fargo. The move is aimed at diversifying the fund’s equity commitments and strengthening its implementation strategy.
Greg Ward, managing partner of Blue Atlantic Partners Fund III, spoke to Multi-Housing News about the fund’s investment approach as well as the challenges to expect going forward. The investment vehicle has commitments of more than $150 million—excluding Wells Fargo—and plans to reach a total target raise of up to $300 million of equity in the coming months.
What is the investment vehicle’s strategy and how does the partnership plan on implementing it?
Ward: The strategy is to invest in well-located quality assets in suburban locations that are in cities within the Sunbelt and Texas. We will implement the strategy by diligently pursuing deals in locations that we have studied through our existing broker and seller relationships.
What does collaborating with Wells Fargo add to BAP III’s investment approach?
Ward: Wells Fargo has been a good partner over the past seven years. This new partnership allows us to continue the relationship and further diversify the fund. It also shows the continued commitment of large institutions to the multifamily investment space and to our platform.
What can you tell us about the fund’s investor base and how it plays into BAP III’s strategy?
Ward: The fund’s investor base is primarily made up of large institutions looking for long-term cash yields with good risk-adjusted returns. Blue Atlantic Partners is singularly focused on multifamily investments in this current fund.
Do you expect investment funds to be impacted by the prolonged economic cycle and the potential slowdown?
Ward: I think most funds understand the cyclical nature of real estate and where we are in the current cycle. That said, fundamentals in well-located assets remain very strong and the yields that are being generated, even with conservative assumptions, are very attractive compared to other real estate product types.
What are some of the challenges for multifamily value-add investment going forward?
Ward: I think the biggest challenge is the amount of capital chasing a limited number of deals. The competition for deals is pushing pricing and compressing yields. The debt markets have helped with that so far this year, but I see that as a big challenge going forward.
Where do you see growth opportunities for multifamily investors in 2020?
Ward: We still think there is room for rent growth in well-located suburban markets. The gap between current rental rates and rates for new product in urban locations is significant. It’s still important to be disciplined and find opportunities below replacement costs at rent levels that are affordable, but the demand from renters should outpace supply in these markets for the foreseeable future.