A joint venture between multifamily developer Cortland and investment firm Declaration Partners is set to deploy an initial $100 million in preferred equity to apartment properties facing loan paydowns.
The partnership will focus on Cortland’s key markets located in oversupplied areas of the Sun Belt and Mountain West regions. The pair will offer fixed-income principal investments between $5 million and $35 million as it looks for opportunities in these areas.
“We believe this well-timed venture positions us to help satisfy the ongoing demand for so-called ‘gap’ capital from owners who are coming up short on proceeds when refinancing debt on their multifamily properties,” Jason Kern, Cortland’s president of investment management, said in a statement.
The endeavor marks Cortland’s first step into managing a dedicated fixed-income program and builds on the company’s relationship with Declaration Partners that has seen the firms invest in several multifamily properties over the past five years.
Project hunt
The announcement comes after Cortland’s recent closing of its Enhanced Value Fund, a $1.5 billion multifamily fund looking for low-cost properties in need of renovations. Declaration Partners has also been active in looking to deploy capital following a similar partnership with real estate lender Peakhill Capital.
That joint venture will look to provide a total of $300 million in preferred equity investments over the next 12 months, ranging from $5 million to $25 million apiece. The capital will support multifamily, student housing and build-to-rent projects by providing short-term capital behind loans from Fannie Mae and Freddie Mac, insurance companies, and commercial mortgage-backed security deals, the companies said.
The moves are part of a larger strategy aimed at capitalizing on a period in multifamily that has seen rising interest rates and declining property values just as loans taken out during a spending spree in the early years of the pandemic are coming due.
"Many owners of multifamily properties are finding their lenders are requiring loan paydowns,” Todd S. Rich, a co-founder of Declaration Partners and head of the firm’s real estate team, said in the statement, adding that the company’s partnership with Peakhill can assist “those owners in successfully recapitalizing their properties.”
Debt coming due
According to private equity firm KKR, more than $250 billion in multifamily loan debt is expected to mature in 2024. Some owners who purchased properties in 2021 and 2022 are facing a deadline to refinance those properties that are now worth less than their purchase price and at significantly higher interest rates.
At the same time, many banks find themselves overexposed to real estate lending and are subject to new capital requirements, making them unlikely to extend new loans. This is making capital scarce and even more expensive, KKR said.
Cortland manages or is invested in more than 250 multifamily properties across the country covering more than 80,000 units. The company boasts $20 billion in assets under management.
Declaration Partners is a private investment firm anchored by the family office of David M. Rubenstein. The company currently has $2.2 billion in assets under management including a focus on value-add real estate and other opportunistic strategies.