Rivergate has been in a "soft rollout mode" since January, according to Massirman, but only recently has it officially made itself public. The boutique firm currently has five employees, with Massirman and Olazarra serving as partners. Rivergate will also leverage off of the platform and resources of ACP, which Olazarra continues to head up.With a focus on the East Coast, specifically Florida. Rivergate will invest in value-add, opportunistic and distressed properties across the residential spectrum, including multifamily projects; stalled, fractured or incomplete condominiums; residentially zoned land; and distressed debt.

Massirman and Olazarra are no strangers to the distressed investment segment. Both executives have weathered prior downturns and have racked up billions of dollars and several thousand units worth of deals during their collective 50 years in the industry. In a recent conversation with GlobeSt.com, Massirman discussed Rivergate, why it was formed and his plans for the new company.

GlobeSt.com: Tell me a bit about why you decided to form Rivergate Residential, and how you did it.
Massirman: I formed my own acquisitions company and had been out a full year trying to acquire value-add multifamily assets. I quickly realized that the market was changing dramatically, and my business plan was turning into more of a marathon than a sprint. I was friendly with Allen de Olazarra for a number of years. We had lunch one day, and one thing led to another, and we decided to collectively form this entity.

For ACP, it was a diversification strategy. It had been involved with multifamily on the development side and was looking to strategically to get into the residential sector. They have a platform right now in 13 major markets along the East Coast, and their market cap is about $2.5 billion. It was just a great combination.

So we formed a new standalone entity, Rivergate Residential, in which we are investing our intellectual capital as well as market knowledge and relationships with institutional and equity capital. It was a logical next step for me. I saw the market changing in such an unprecedented fashion that I felt it was a once-in-a-lifetime opportunity.

GlobeSt.com: You're looking at a variety of opportunities across the "troubled asset" spectrum, from value-add product to distressed debt. Do you think you'll invest more in one type of play than another?
Massirman: You have to be extremely agile today and able to analyze a myriad of different opportunities. A lot of it is based on assumptions--how long is it going to take for the market to come back, and where? It's a little more opportunity-driven in terms of what we're able to derive through banking relationships. There's obviously a lot of capital chasing deals today. We're in a unique position where we're real estate professionals buying real estate, versus capital guys buying real estate. So we're able to underwrite probably a lot more accurately within our platform. We'll be using strategic management companies, but we'll also be doing some of our own management.Right now, there are just a lot of different opportunities out there. There are overleveraged apartment communities that are just rentals. There are completed, failed condo projects that are sitting empty, some of which have been incredibly over-conceived and not built to market demand.

GlobeSt.com: What would a typical investment be like for you?
Massirman: It varies. We leave ourselves very flexible. If we just focused on buying value-add rental properties, it would typically be in the $15 million to $30 million range. But in this market, we're looking at several different types; we're looking at some loans that are under $5 million.

GlobeSt.com: How much do you have to invest now?
Massirman: We have a significant amount of capital to invest. We're also in the throes of raising a small sponsorship fund of about $25 million, which we'll probably close it sometime this fall. The fund is comprised of primarily friends and family. We have excellent relationships on the capital side, from small individual investors up to major institutional funds, from private equity to opportunity funds to real estate funds. The sponsor equity was really to allow us to raise the bar on our acquisitions, react a lot more quickly and have capital available.

GlobeSt.com: The capital climate is becoming increasingly tighter. It's more difficult to obtain debt and equity players and kind of sitting on the sidelines. How do you intend to navigate that environment?
Massirman: Where it's available, sometimes there's seller financing. Where there isn't seller financing, we're looking to purchase all cash with our partners. And if it's buying a loan, we might have to take title to the property before we can put debt on it. In some instances, there is leverage, but it's much lower--probably 30% to 50% on projects with a lot of hair on them.

GlobeSt.com: There have been several other firms or investor groups that have come out with a similar focus on distressed assets. Are you seeing competition out there?
Massirman: A lot of folks see it as pretty much a game right now. A lot of people say they're in the market. The joke around town is that everyone's got a fund in tow. What we're seeing is there's a lot of these groups that just aren't entirely qualified, where they don't really understand the local real estate. That's why we feel like we're in a good position because we'll also co-invest with other groups. They'll bring us in because of our expertise and the fact that we can underwrite deals at an extremely rapid pace. That's actually been appealing to funds that we were originally competing with, and now we're talking about potential alliances on deals.

For instance, we have a really strong strategic partner--Colorado and Santa Fe out of Denver--that we have a close relationship with. They're a big equity and operating partner with several years of experience in distressed acquisitions that we have teamed up with on a number of potential acquisitions. They're just one example of a strong capital partner we've pursued acquisitions with.

GlobeSt.com: For investors right now, the gap between what buyers are willing to pay and what sellers expect to get for their assets, distressed or not, is causing deal volume to slow. Has that hindered you at all?
Massirman: It's kept a lot of folks on the sidelines. We are starting to see a crack in the dam a little bit, if you will. There's more than likely another shoe that's going to drop in the market. Generally speaking, we think the market still has a little ways to go.

GlobeSt.com: Have you closed any deals lately, or you working on any deals now?
Massirman: We are working on several deals as we speak but we're weeding through them to find the ones we're very comfortable with. That's part of the whole challenge, to get your arms around some of these acquisitions. It isn't entirely easy when you're buying loans that are non-performing. And even the fractured condos, there is a lot of hair on those deals, as well as potential liabilities and pitfalls. We do see the bid-ask spread gap narrowing now, so we think we're probably going to be more active in the fourth quarter of the first quarter of 2009.

GlobeSt.com: It seems like the market is shifting every day. What's your outlook for the apartment sector, and your plans for Rivergate? What opportunities do you see on the horizon?
Massirman: We love the apartment business. We envision ourselves as a very agile and competitive multifamily value-add shop, if you will. We are obviously looking to move forward prudently and maintain and manage growth. For the long term, we see ourselves in the traditional value-add multifamily space. But right now, we see a very unique opportunity in the next couple of years on more of a broad range of product in the residential sector. That's our short-term goal, the distressed arena. The long-term goal is back to the more fundamental blocking and tackling of value-add.

Instant Insights /

Rivergate Residential's Jay H. Massirman

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