Toronto-based Greybrook is turning its focus to the U.S. multifamily market with a new fund seeking to capitalize on deeper liquidity south of the border.

Greybrook has launched the Greybrook U.S. Multifamily Income & Growth Fund, reflecting the firm's conviction that the timing is right to deepen investment in the U.S. apartment sector.

“We felt that the U.S. — on a relative value perspective and ultimately from an investor's vantage point to produce a good risk-adjusted return — was a more compelling proposition than Canada,” Greybrook Securities chief executive officer and Greybrook Capital partner Sasha Cucuz told RENX.

A large number of multifamily properties in Canada are owned by institutions or families that hold them long-term. There’s more liquidity and a larger number of assets in the United States, so there’s a lot more transaction activity and prices have responded to market conditions that are weaker than earlier in the decade, he suggested.

“The U.S. is one of the most liquid and deepest capital markets in the world,” said Cucuz. “So, just by virtue of that, we wanted to to increase our exposure there and we felt that, with the entry point being so compelling, this was the right time to do it.”

Greybrook’s multifamily portfolio

This new private fund builds on Greybrook’s multifamily investment in approximately 4,600 units in Canada and the U.S.

Greybrook already owned American multifamily properties through a value-add strategy of acquiring older assets that required significant capital expenditures for renovations and other improvements.

The new fund will focus on newer class-B properties that require a lot less capital expenditures. The priority is more on growing net operating income, enhancing portfolio asset value and generating cash flow and distributions. 

Investor reaction

The fund is targeting a total annualized return of 10 to 12 per cent and an annual distribution of five to 5.5 per cent, with distributions paid monthly.

The investor base for the fund is predominantly high net worth individuals and family offices, and Cucuz said their response has been positive to the perceived benefits of the U.S. multifamily market.

The U.S. has more large cities than Canada and it’s more common for people to move from city to city, which can make these cities more affordable than Toronto or Vancouver. “We're looking at rent-to-income ratios that are below 20 per cent in some cases,” said Cucuz.  

The new fund is focused on acquiring apartment communities for below replacement cost in select affordable markets with population and employment growth across the U.S. Sun Belt and Midwest, including Atlanta, Dallas-Fort Worth, Houston, Charlotte, Nashville, Tampa, Indianapolis and Cincinnati.

“We're specifically targeting garden-style apartments and not concrete highrises in urban centres,” explained Cucuz. “They’re communities that have their own surface parking and maybe a tennis court, a pool and a clubhouse, and there might be three to five structures.”

The fund’s first acquisitions

The fund's initial portfolio will include two garden-style multifamily communities, Meadow Springs and Meadow View, comprising more than 450 units in metropolitan Atlanta. They have a combined asset value of approximately $110 million. 

“Atlanta is a market that we have familiarity with and we're going to continue being active in that market,” said Cucuz. 

The fund's pipeline also includes a third asset it intends to acquire in Dallas-Fort Worth that would add more than 300 units.

Cucuz is looking to add $100 million to $150 million to the open-ended fund annually to make more acquisitions.

Canadians under-allocate in U.S. real estate

Cucuz believes that Canadians are generally under-allocated to U.S. real estate, citing apartment real estate investment trusts that only have Canadian portfolios as an example. 

“The U.S. is such an enormous market and if you think about the opportunities that exist across 40 major metros in a growing economy, notwithstanding politics for a second, there are a lot of growth characteristics that one would really gravitate toward,” said Cucuz. 

“I just think Canadians sometimes don't have it top of mind enough, so to speak, and we're trying to change that.”

Canada is still a priority

Greybrook is focused on residential development and multifamily value-add and income-producing investments across North America. Its platform serves more than 10,000 investors and spans acquisitions, asset management, capital markets and investment management.

Through its affiliates, Greybrook has invested approximately $2.5 billion of equity across more than 115 real estate projects in Canada and the U.S. These investments represent more than 80 million square feet of residential and commercial density with an estimated aggregate completion value exceeding $45 billion. 

“We're not abandoning the Canadian market and we're still bullish on the long-term fundamentals of the Canadian market,” said Cucuz. 

“But like anything in investing, it's about timing. And right now we feel that the timing in the U.S. is just a better risk-adjusted return for our capital.”