For example, institutional investors/real estate operators may sell property off-market at a discount instead of having it professionally marketed, or they may fail to maintain properties. One can’t charge as much rent, attract as many tenants or sell a property for as appealing a multiple if it’s an “old, tired asset,” he says.
MLG Capital, which gets to know local markets well, also finds opportunities when institutional investors/operators lack “depth of local talent” or sell large real estate portfolios at bulk pricing. “Oftentimes, this approach leaves money on the table,” says Rick Stoll, the assistant vice president of private equity at MLG Capital, because the individual assets are worth more. MLG Capital looks to buy these portfolios and “sell the assets one-off at retail pricing,” he says.
The firm’s favorite sectors are multifamily and industrial real estate. Each sports a national occupancy rate of about 95%, but he and Wallen stress the need to evaluate supply and demand in specific markets. Warehouses, especially where land for new construction is limited, are thriving in a stronger economy, they say, and multifamily properties are benefiting from an aging population and student debt that’s hampering home purchases.
“We love buying multifamily when it’s 100% occupied,” says Wallen. “The market is telling the owner they’re charging below market rents.”
The challenge MLG Capital finds with office and retail properties is that high capital expenditures are generally required as tenants come and go. There are exceptions. For office properties, “It’s a landlords’ market in Boston, San Francisco and downtown Dallas,” says Wallen.
Retail real estate, also 95% occupied nationally, he says, can benefit from population growth and muted new construction due to e-commerce jitters. “Amazon is not taking over the world,” Wallen says. It captured just 4% of total U.S. retail sales in 2017 and it purchased Whole Foods because, he says, “It needed the bricks to go with the clicks.”
MLG Capital’s funds, for accredited investors, typically offer exposure to 20 to 25 private real estate deals across six to 10 states, he says.
Meanwhile, retail investors interested in private real estate investments can now find more options in the quickly expanding NAV REIT market. NAV REITs are non-exchange-traded vehicles that, unlike the old private REITs, are designed to have a perpetual life span and operate more like mutual funds. NAVs price their net asset value daily or monthly and offer a lot more liquidity than private REITs.
Firms that have entered the NAV REIT market include Blackstone, Nuveen, Starwood Capital and Griffin Capital.
Growing Appeal