Where Universe Holdings Sees Better Yields

Universe Holdings is strategically shifting its investment focus to large multifamily assets, upwards of 200 units. The firm has focused on small, 40- to 50-unit apartment buildings since the recession, but now sees growing opportunities in large assets and less competition. Universe isn’t wasting any time. The firm recently partnered with Hanover Financial and Essex Property Trust to buy a 400-unit apartment complex in Ventura, CA, for $100 million. We sat down with Henry Manoucheri, chairman and CEO of Universe Holdings, to talk about the strategic shift.

GlobeSt.com: Tell me about you strategic shift to focus on large multifamily assets?

Henry Manoucheri: It has always been in our wheelhouse to buy larger buildings. In the past five or six years, we were able to accumulate a large number of smaller properties of 40 or 50 units because we decided at that time that is was more beneficial to buy small properties and lots of them. It was far less competitive, and we didn’t have to compete against large institutions and funds like we would have on bigger deals. Additionally, our investors had far better cap rates, yields and IRRs on these smaller deals, and it was less competitive to be in below-the-radar assets, especially in infill Los Angeles and San Diego or other markets with really high barriers to entry.

GlobeSt.com: Do you see better opportunities for large multifamily assets?

Manoucheri: In our corporate history, we did 10 large transactions from 2003 to 2011. We had a nice run with large assets. After the financial crisis, we changed our focus to smaller transactions. Now, we feel that large assets are becoming less competitive in the rising interest rate environment and the disconnect of the Costa Hawkins repeal is causing, we feel that some people are going to fall to the sidelines and there will be more competitive opportunities for us.

GlobeSt.com: How are you defining “large” multifamily assets?

Manoucheri: We are in the arena of 200 units-plus, all the way up to 1,000 units or more. We are also going to be looking at much larger portfolio transactions of five or 10 or 200-plus unit buildings. We have the capability of doing transactions of $500 million or higher. We are looking to take the success that we had with this one deal and accumulate more assets faster in a portfolio-type situation.

GlobeSt.com: How are you financing large transactions?

Manoucheri: We have been courting a good cadre of larger private equity investors. We did our first deal with Hanover a year and a half ago, and they were happy with the results. There was an expression from them and other groups to invest with us because they had seen how effectively that we were executing our business plan. We were able to form relationships with committed capital, and we knew we could get the deals done. That enabled us to put more energy and focus into larger assets because we also want to grow our company. It is hard to scale and grow a business by only buying smaller assets.

GlobeSt.com: With this shift in asset size, are you changing your geographic focus away from Southern California?

Manoucheri: We want to continue to buy in Southern California, and we also want to buy properties in other markets in the Western United States where there is a better cash-on-cash yield, and where it is easier for us to attract capital by getting a better yield. Southern California has become increasingly expensive and harder to operate in. We are going to put more energy into sourcing off-market deals because when a deal is widely marketed, it is hard to win a deal that makes any sense.

GlobeSt.com: What are you acquisition goals in both the near and short term?

Manoucheri: We would like to get to a total holding of 5,000 units in the next year and a half in Southern California. In the next four years, provided the market conditions are still there, we would like to get to 10,000 units. Because of rising interest rates, the Costa Hawkins factor and where prices are today, we feel that there are going to be much better opportunities in the next couple of years because it is going to become less competitive.