Telis Group co-founders RD Khoury and Keller Reese see opportunity in new housing projects and are working to close a $75 million fund earmarked to partner with apartment developers throughout the United States to get new developments off of the ground.
The Fort Worth, Texas-based fund manager said it's raised about half its goal amount and expects to close on the fund by year end. So Telis has begun lining up potential projects in its deal pipeline and development partnerships to help address the national housing shortage.
"The goal of this fund is to invest as a co-general partner in multifamily developments with a competitive edge of having a strategic operating partner who is able to deliver at a very attractive basis," Khoury, a managing principal of Telis, told CoStar News. "We have built a pipeline of about 10 deals. As opposed to coming to the table with just capital or a balance sheet, we are really coming at this with a cost basis, where we can bid this project in theory below what other general contractors could bid for it."
Khoury, who has a 10-year track record as a private real estate fund manager, and fellow managing principal Keller Reese launched Telis with co-founder and strategic operating partner Eric Garrett, who also runs The Garrett Cos. Garrett Cos., based near Indianapolis, is a multifamily development, construction and management firm.
Focus on Growing Markets
Telis plans to work with developers on market-rate apartment projects in the U.S. markets known for job growth. These include Denver, Las Vegas, Phoenix and Salt Lake City, as well as major Sun Belt markets such as Atlanta, the Carolinas and Tennessee. With fewer projects underway because of tight capital markets, Telis seeks to fill a much-needed role in delivering new apartments in the coming years.
Apartment developers have to build 4.3 million units across the country over the next dozen years to meet demand, industry groups estimate, with about 40% of that construction needed in California, Florida and Texas, according to according to a 2022 study commissioned by the National Apartment Association and the National Multifamily Housing Council.
"We are hitting a price point where it's difficult to oversupply because it's on the more affordable side of Class A and A- product," Reese told CoStar News. "There's plenty of developers that go into the urban core to add mid-rise and high-rise deals, but we want to focus on a fatter part of the renter curve where we can deliver a Class A apartment project at a reasonable cost basis hitting rents that in some instances could be lower than what the rents are for existing supply in the market."
In all, the fund could provide capital to as many as 30 to 40 projects depending on the firm's investment in each project. Garrett Cos. will be involved in projects where its services come in at a lower cost compared with third-party general contractors, Khoury said.
With less liquidity in the market today to finance a new apartment project, Telis could become part of a bigger capital stack to help developers begin new projects, Reese said. With the recent apartment development slowdown, pipelines now are about 60% to 80% of what they were two years ago, leaving Telis well positioned to help deliver projects in a less-competitive market in the years to come, he said.
"There's been a flight to stronger economic deals," Khoury said. "Not that many projects are hitting the return profile needed by lenders and equity groups looking for a higher yielding deal. But when we supply a bid through Garrett Companies, we often see a 25 to 75 basis point lift on the going-in yield and it becomes more attractive to lenders."
Prior to launching Telis, Khoury and Reese worked together at private equity firm Phoenix Capital Management, which also invests in U.S. apartments.