Equity Investment Criteria

BestCRE works with hundreds of equity investors, below we have organized investment criteria based on commonalities and differences in their investment preferences to provide a comprehensive summary and analysis of the equity investment criteria from various investors and family offices for multifamily and residential asset projects. Here are the key criteria and features highlighted:

Common Criteria Across Various Investors

1. Asset Class Focus: Most investors focus primarily on multifamily assets, with some also including other residential assets like SFR (Single Family Residential), BTR (Build-to-Rent), Student Housing & Senior Housing.
2. Geographical Preference: While many investors are open to nationwide opportunities, specific preferences for regions like the Sunbelt region, Eastern USA, & Mountain West and specific urban markets (e.g., Baltimore, Cleveland) are noted. (Contact us about your market)
3. Investment Strategies:
   • Value-Add and Ground Up development are common strategies across most investors.
   • Some also consider Core, Core Plus, and other specialized strategies like platform investments at the OpCo and PropCo levels.
4. Financial Criteria:
   • Minimum Ticket Size: Ranges from $1 million to $100 million+, with flexibility depending on the depth of the relationship and the nature of the project.
   • Expected Returns: IRR expectations vary widely but generally fall in the mid-teens to over 20% for ground-up developments. Some investors are flexible with returns, focusing more on the project specifics.
   • Hold Duration: Ranges from short-term to long-term hold preferences, with some investors being flexible.
   • Equity Ratio: Some investors are willing to go up to 90/10 equity-to-debt ratios.
5. Additional Offerings:
   • Preferred Equity: Several investors provide preferred equity with various terms and conditions, including accruing rates starting from 12% and stretching last dollars up to 90% LTC.
   • Co-GP Equity: Involvement ranges from providing a significant portion of the GP equity to assisting in raising LP equity.

Key Differences and Unique Aspects

1. Minimum Investment Returns:
   • Specific investors target minimum MoIC (Multiple on Invested Capital) of 1.8X.
   • Others specify exact IRR figures like mid to high teens for value-add and over 20% for ground-up projects.
2. Regional Preferences:
   • Some investors prefer specific regions like the Eastern USA or the Sunbelt region, influencing the types of deals they consider.
3. Ticket Size Flexibility:
   • While some investors specify a narrow range (e.g., $5mm to $25mm), others are flexible up to several hundred million dollars, particularly for programmatic ventures.
4. Sector Specificity:
   • Apart from general multifamily investments, some investors also focus on niche markets like build to rent manufactured housing, RV parks, student housing & senior housing.
5. Investment Structure:
   • Differences in the structure of investments, such as JV Equity, LP Equity, Co-GP Equity, and the distinction between investing in OpCo versus PropCo levels in platform investments.
6. Operational Engagement:
   • Some investors seek more operational engagement, preferring to invest in the operational company (OpCo) and provide joint venture equity to the property company (PropCo).

Conclusion

Investors and family offices show a robust interest in multifamily and other residential asset classes, with varying degrees of flexibility and specificity in their investment criteria. The majority share common themes in seeking value-add and ground-up opportunities across diverse geographic regions, with financial structures tailored to maximize returns and partnership efficacy. Differences primarily lie in the details of financial expectations, geographical preferences, and investment structure, which must be carefully matched with project specifics and sponsor capabilities for successful capital deployment.