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NWRE buying U.S. apartments with new US$100M fund

Nicola U.S. Multi Family Limited Partnership is firm's first closed-ended fund

Nicola Wealth Real Estate is partnering with U.S.-based Venterra, and has raised $100M U.S. to commit to a new venture to acquire apartment complexes in target U.S. markets. (Courtesy Nicola Wealth)
Nicola Wealth Real Estate is partnering with U.S.-based Venterra and has raised over $100 million US to commit to a new venture to acquire apartment complexes in target U.S. markets. (Courtesy Nicola Wealth)

Vancouver-based Nicola Wealth Real Estate (NWRE) raised more than US$100 million for its closed-ended Nicola U.S. Multi Family Limited Partnership fund in 45 days to take advantage of an acquisition window south of the border.

NWRE is the in-house real estate team of Nicola Wealth Management Ltd. Its portfolio of industrial, multifamily rental apartment, office, self-storage, retail and seniors housing properties is valued at more than $14.8 billion (all figures Cdn, unless otherwise noted).

“We have a fully integrated team with asset management, leasing, debt, development and acquisitions,” NWRE managing director Mark Hannah told RENX. “We have a lot of expertise in-house that can execute when we go to the marketplace.” 

NWRE is collaborating with longtime American partner Venterra Realty to acquire multifamily assets in the southern United States, with an emphasis on Texas and Florida.

Houston-based Venterra was founded in 2001. The privately held real estate investment company owns and manages more than 80 communities and more than 25,000 apartment units valued at more than US$5 billion across 19 major U.S. cities.

Near-term acquisition opportunities

Hannah said Venterra approached NWRE in August to discuss an enticing opportunity to acquire recently completed, quality-built multifamily assets for significantly below replacement cost in U.S. markets where it’s already established. 

“That was very appealing to us,” Hannah said. “These developers, in this interest rate environment, have a need for liquidity and are therefore more highly motivated to sell these finished products. 

"Because there are fewer buyers out there in this environment and we still remain active, we saw maybe a nine- to 12-month window where we could take advantage. I say nine to 12 months because a lot of people are already talking about the anticipation of interest rates possibly coming down by Q2 or Q3 (2024).”

Lower interest rates could bring investors that are now on the sidelines back into play and increase competition and pricing. The goal of using the fund is to make acquisitions now and beat them to the punch.

This past year saw a growing number of merchant developers and building owners with liquidity issues.

Many of these firms have floating debt whereby the economics of projects don’t work as well now as when they were started in a lower interest rate environment. Thus, they might need capital now and be forced to sell assets earlier than originally planned.

Venterra has an important role

“Our partner has very deep bench strength on the ground in those markets where they can implement their asset management, property management or dynamic pricing to take these assets, that might be 10 to 30 per cent leased, to get them stabilized within a very short timeframe,” Hannah observed.

While Nicola Wealth has traditionally offered evergreen, open-ended funds, it went to its investors with this new closed-ended fund and quickly attracted a lot of interest.

“We needed to have the capital to respond quickly,” said Hannah. “That's why we we created the closed-end fund.”

Most of the investors are high-net-worth families which contributed a minimum of $500,000.

NWRE employees were offered a lower minimum investment threshold to become involved and Hannah said many of them jumped on it as well.

“What that does is it demonstrates to our clients that we're investing too, and that's very strong alignment,” Hannah said. “They like that.”

Having a trusted partner in Venterra along with a proven strategy made investors comfortable with becoming part of the Nicola U.S. Multi Family Limited Partnership, even in a challenging investment environment, according to Hannah.

First acquisitions with new fund

It’s envisioned that 12 to 14 acquisitions worth about US$500 million will be made with money from the fund, Venterra’s contributions and through debt.

Four deals have already closed in Houston, Tampa and Orlando, and two more are under contract and should close soon in Houston and San Antonio.

“The typical prototype is garden-style in a gated community with amenities and 300 units,” Hannah said.

He anticipates opportunities to acquire more similar assets this quarter.

“The nice thing about our partnership with Venterra is that collectively we're able to be patient and we're not afraid to walk away if the terms aren't right.

"It's not like we’re on the clock and we need to fulfill this. We want to do it for the right reason and get the right asset type at the right pricing.”

It’s possible this first fund could be expanded or another identical one could be launched if more opportunities are presented in a short timeframe and more capital is needed, Hannah said.

Canadian closed-ended fund to launch in new year

NWRE and Nicola Institutional Realty Advisors (NIRA) are planning a Q1 launch for a closed-ended fund that will focus on Canadian acquisition opportunities.

They’re looking to raise between $150 million and $200 million from institutional investors, with a minimum contribution likely to be $5 million. 

NWRE and NIRA (formerly known as Nicola Blackwood Realty Advisors) will also invest and high-net-worth families will be welcome to take part if they’re willing and able.

The fund will focus on value-add opportunities in Toronto, Vancouver, Montreal, Calgary and perhaps some other markets.

Industrial will be the primary target asset class, but Hannah said the fund could also consider acquiring existing multifamily, self-storage and flex office properties.

“We think that there is again another interesting opportunity in this environment to acquire existing assets at attractive pricing below replacement cost in this capital-constrained environment,” Hannah said.

“We're going to have a unique value proposition for our investors that goes beyond creating a return on capital.”

Comparing Canada and the U.S.

Hannah said the Canadian debt market is more reliable than its American counterpart as the U.S. has experienced bank failures and consolidations and many banks aren’t lending at the moment as they try to figure out if existing loans will be paid back.

“I think that the U.S. will be slower to recover and that's where the opportunity is with Venterra,” said Hannah, adding there are also good acquisition prospects in NWRE’s target Canadian markets.

Hannah anticipates industrial vacancy rates to creep up a bit from historic lows of about one per cent in Vancouver and Toronto, but still remain well below five per cent.

“There are going to be some company failures in this environment,” Hannah noted. “But generally, if you're at one or two per cent (vacancy), that's a pretty strong market if you're a landlord.

“Small-bay and mid-bay users need to be in a quality infill location, so we're going to try and stick to the core markets and main industrial nodes where these people need to be.” 

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