Multifamily real estate investing hasn’t been an activity for the faint of heart for the past year.
Between rising interest rates, the need for expensive capital for renovations, an overall seismic volatility in the capital markets, and sluggish rents, there are fewer investment winners. Benzinga spoke to one company that has weathered market volatility and has built $5 billion in investments primarily in multifamily homes.
Dallas-based RREAF Holdings is a privately held commercial real estate company with a track record of successful acquisitions, developments, asset management and holdings across the United States through the financing of complex real estate projects.Chief Investment Officer Graham Soden We sat down with Benzinga to discuss RREAF’s winning strategy and the current multifamily investment environment.
How much is RREAF investing in multifamily space?
We started the company in 2010 and currently have investments in six major verticals, with multifamily acquisitions being our biggest. We are primarily focused on B+ multifamily housing and are focused on the secondary market. Over the past five years, we have built a reputation of being one of the most active buyers in our field. Our total portfolio is approximately $5 billion, of which $3 billion is multifamily investments.
Worried about an impending recession?
we are one now But while our space isn’t recession-proof, I think our business model is recession-proof. We don’t buy Class A properties because they hit first.
Is the current economic environment influencing your multifamily investment decisions?
It’s hard to buy anything now. Capital markets are volatile and things are slowing down. Rents have not risen as expected and many of these groups will need to finance their properties to keep them going. Eventually they will be forced to sell or refinance, which would be difficult today. What we’ve done with our investment in multifamily homes is lock in long-term fixed rates. But we remain opportunistic buyers and have been one of the most active buyers in the last two years. Buying will continue, but the market is slowing and we expect that to continue for at least the first quarter.
Are you optimistic about the second half of the year?
We believe that interest rates may return to zero in the next 2-3 years and there may be purchase opportunities or loan preconditions or properties that require cash injections. But we need cash to do that, and we’ve been focused on rebuilding our own cash reserves.
Why are your investments focused exclusively on the Sunbelt?
Of course, we’re seeing mass migration from both the coast and the Midwest to the Sun Coast. Taxes are cheaper, the cost of living is cheaper, and people working remotely can spread out and have more space. We see a lot of economic activity, with companies relocating to the area. We are currently focused on regions with double-digit population growth, including Florida, Texas, Georgia, North Carolina, South Carolina, Mississippi, and Alabama. We focus on areas with economic drivers such as universities, medical facilities, military bases, manufacturing and distribution. I need those combos. For example, Amazon doesn’t just invest in markets where it has fulfillment centers.
There has been a lot of discussion over the past year about companies taking advantage of low rental inventory to raise prices by as much as 40%. What is RREAF’s rent increase strategy?
We are increasing rents in line with our budget of 2-3 years ago. We are now just above our budget pro forma rents and are not arbitrarily raising them. Raise it by 20%.
CRE in 2023 has many question marks, what is RREAF’s future strategy?
We are currently buying hotels and motels on beaches in the Florida Panhandle and Gulf Coast, including Coco Beach and Amelia Island, Florida, and Myrtle Beach, South Carolina. We’re tearing down the hotel, adding new restaurants and bars, and bringing the same experience you’d find in a 4 or 5 star hotel on the beach to Central America. This space caters more to blue-collar customers. Our strategy is to own these properties for the long term and offer a 30% return.
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