Why Value-Add Players Are Placing Longer Debt on New Buys

TruAmerica Multifamily—a major value-add investor—is being more selective in its acquisition strategy this year, and it is focusing on quality assets that will perform better in down cycles. In addition, the firm is placing longer-term debt on new acquisitions. Its recent two multifamily acquisitions in Phoenix and Las Vegas both have seven-year debt, rather than the typical three-to-five year financing in the firm has placed on earlier transactions. For these properties, the firm is anticipating a longer hold with of four to seven years.

The two acquisitions in Phoenix and Las Vegas totaled $142.1 million, and included Galleria Palms, a 424-unit multifamily property in the Phoenix submarket of Tempe, purchased for $75.1 million, and Aviata, a 456-unit multifamily property in the Las Vegas submarket of Henderson/Paradise Valley, purchased for $67 million. “We put on seven-year financing on these assets, but I think we are targeting a four to seven-year hold, depending on what happens in the economy,” Noah Hochman, senior managing director of capital markets at TruAmerica Multifamily, tells GlobeSt.com. “Because these assets are newer construction, they will perform very well in down cycles. Our business plan in four to seven years.”

This isn’t to say that TruAmerica expects a correction any time soon; however, it is beginning to mitigate risk by selecting properties that will withstand a correction. “I am not suggesting that we think there is any type of downturn that is imminent,” adds Hochman. “This has been a long cycle, and there will be a change in the cycle at some point. We certainly are being more selective as we approach opportunities. We continue to focus on opportunities in the first-tier markets and coastal markets in the East Coast. We have a long-term view on the business, but we are certainly being more selective.”

While the firm is strategizing for the future, today, it is still seeing strong rent growth and demand across its portfolio. TruAmerica does not see a change in those fundamentals any time soon “We are still seeing rent growth in our portfolio, and at the end of the day we like this business,” says Hochman. “You see a lot of global capital that is coming into multifamily because there are less potential disruptors. Our country continues to have a housing shortage in many markets and an affordability issue. I don’t see any of that being addressed or going away any time soon. Regardless of any change in the cycle, everyone needs a place to live, and that is how we think about the business.”