REAL ESTATE - Principal Real Estate Investors has created a $300m (€239m) joint venture with The Dermot Company to invest in apartments in New York City.
The equity in the deal is $100m, with the majority coming from Principal. The pension fund advisor made its investment for one of its commingled funds.
The person working on the transaction for Principal was John Frandson, managing director of structured equity for the company. He said: “It’s our feeling that the New York residential market represents some good value-added investment opportunities. A good active apartment manager can make a big deal in this market. This is why we have teamed up with Dermot on this venture.”
Dermot is based in New York City. It has been active with apartments since 1992. The company owns or holds investments in more than 5,000 units.
The investment strategy for the JV is to acquire B quality apartment assets. These properties would be located in the five boroughs of New York City. These are the areas of Manhattan, Bronx, Brooklyn, Queens and Staten Island. The initial property for the venture is a two-building 121-unit complex in Astoria, Queens. The purchase price on this deal was in the low $13 million range.
Principal looks at this venture as a value-added investment strategy. The real estate manager will seek transactions that can produce a mid teens kind of leveraged IRR. This yield assumes a holding period ranging from three to seven years.
The value-added component to the venture will be through the management of the assets. The New York housing market remains very tight. There isn’t a lot of new development happening. The value created is how existing properties are managed.
Principal figures that a typical size deal for the venture will be in the $15 million to $20 million range. This will include a combination of debt and equity. Most of the properties purchased will be in the neighborhood of 100 units. The terms of the JV call for a two-year investment period to buy all of the assets.