IRVINE, CA—Finding a niche that the masses either haven’t yet discovered or aren’t interested in is one way to increase yield. For the Bascom Group LLC, focusing on class-B and –C properties has been a successful niche for one of its fund, says Chad Sanderson, a principal in business acquisitions and development for the firm.
As GlobeSt.com reported earlier this week, the firm has closed its second fully discretionary real estate investment fund, Bascom Value Added Apartment Investors II LLC. The fund provides up to $300 million of buying power, with leverage, for value-added multifamily acquisitions across an 11-state region. Since the start of the capital raise, the fund has acquired six multifamily properties and has specified another two properties that are expected to close in the first quarter of 2014. According to Jerome Fink, managing partner of Bascom, “Fund II is designed to acquire individual properties priced between $8 million and $45 million. The main focus of the fund is on class-B and –C properties that are often outside the typical investment parameters of many institutional investors. Historically, we have been able to find better risk-adjusted returns on value-added deals with these characteristics.”
Sanderson tells GlobeSt.com that one of the things Bascom tried to do with the fund was to “really focus on properties we could buy that were just outside of where the institutional capital focuses. We do that by focusing on B and C properties in this part of the apartment recovery.”
Sanderson says the fund is designed for slightly smaller equity investment—between $4 million and $13 million in equity. “This is smaller than what institutional investors will put into their deals. Because there’s more distress on it, it’s an area with less institutional-capital focus.”
In its investments, the firm is looking for total ROI, seeking opportunities to go in and reposition a property by improving operations or by doing renovations to the property. “We’re looking to enhance the physical quality of the assets to drive rents and improve NOI,” says Sanderson.
Rather than having a set cost range for renovations of these properties, Bascom takes a market-driven approach to determining how much renovation to do. “We’re looking at the quality level of comparable properties in the market, the rent differential and how much renovation we can support based on the rent upside,” says Sanderson. “It’s not a one-size-fits-all approach to renovations.”
Sanderson adds that the states this fund invests in are based on markets that are lifestyle destinations that have good population growth over a long period of time and good demand drivers. The capital raised for this fund is from high-net-worth individual investors through registered investment-advisory services. “It’s a good time in the market –with our first fund launched in 2011 and the second launched in 2013—to really focus on high-net-worth investors. We’re seeing a real desire among this group to find investment vehicles with strong operators. It gives them an alternative investment to what typical wealth managers will offer: bond investments, equity investments and real estate offerings limited to publicly traded REITs.”