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John Haltmaier | Managing Director | |
jhaltmaier@castleplacement.com | |
(973) 699-7995 | |
https://www.linkedin.com/in/johnhaltmaier/ |
Overview
Terra Capital is seeking $25 million of equity to expand its highly successful value-add, small multifamily property aggregation strategy
Focus on sub-20-unit properties in high-growth midwestern markets, including Pittsburgh, Columbus and Indianapolis
Often overlooked market segment with few institutional owners
Seek to aggregate unlisted, value-add properties, renovate and sell as a portfolio thereby “institutionalizing” lower middle market real estate
Operating cash-on-cash returns were 15% across 20 stabilized properties in 2023 (detailed financial information available upon request)
Opportunity
$5 Trillion US Asset Class
Terra is targeting a $5 trillion US asset class comprising 25.5 million units with extremely little professional competition
Small multifamily properties (under 50 units) make up 80% of the US multifamily market
Only 7% of small multifamily properties are owned by institutional investors compared with 41% for larger multifamily
Target Markets
Target markets share several attractive characteristics:
Less competition – management is unaware of other institutional real estate platforms with a strategy similar to Terra Capital’s in its target markets – mostly “mom and pop” operators
Favorable costs – management is finding plenty of inventory not “picked over” over by larger competitors, construction labor is available at a reasonable cost, more landlord-friendly laws, higher yields – cap rates tend to be in the 6.5%+ range versus a national average of about 5%
Management is finding numerous value-add opportunities – aesthetically pleasing townhomes and Victorian-style buildings with “good bones” in need of renovation
Solution / Strategy
Buy a series of sub-20-unit residential buildings, at attractive prices
- many small multifamily properties require significant renovation, precluding many potential buyers
- send approximately 4,500 outbound touches a week to mini-multi property owners via email, phone calls, and cold calls
Renovate properties to be “top of the market” quality
Sell portfolio of properties – patient exit strategy based on carefully monitoring market conditions to optimize results
Management
Tom Higgins| Managing Partner
- Over ten years in real estate development, investing and brokerage, operations and construction management. Developed over 2,000 units
- Worked previously at Lennar, Rose Associates, Silvershore and Brown Harris Stevens in a variety of roles, acquiring multifamily properties, sourcing land, developing and redeveloping properties and selling condominiums
- BA, Economics and Philosophy, Columbia University
Ray Heimann | Managing Partner
- Over ten years in real estate, private equity and investment banking
- Responsible for acquisitions, deal structuring and portfolio management
- Previously worked at Sverica Capital (closed over $750 million of acquisitions), Booz & Company (consulted on over $3.5 billion of corporate transactions)
- Also worked in investment banking at JP Morgan managing US REIT clients. BA, Mathematics and Philosophy, Columbia University
Specific Risks
- Residential real estate can be volatile and adversely affected by weak economic conditions, leading to evictions, defaults and a decrease in property values
- The cost and availability of debt financing can vary, which can adversely affect cash flow and returns
- Short-term construction financing for properties requiring significant renovation is subject to refinancing risk
- Costs may increase faster than the company’s ability to raise rents, reducing property cash flow
- The company may overpay for properties, reducing returns or even resulting in cash losses
- Renovations may be more complex and costly and take longer than expected, reducing returns
- Private securities are speculative, illiquid, and carry a high degree of risk – including the loss of the entire investment.