What Goldman Sachs Saw in $170M Multifamily Acquisitions

NEW YORK CITY—Goldman Sachs Asset Management Private Real Estate acquired a 370-unit multifamily property, Retreat at Shadow Creek Ranch. It’s located at 2500 Business Center Drive in the Pearland submarket of Houston, TX. The company also acquired a 372-unit multifamily property, Bailey Farm apartments, at 1225 183rd St. SE in Bothell, WA, a suburb of Seattle.

Although further details about the deal including sellers and prices were not disclosed, according to industry sources the two deals totaled approximately $170 million. In addition, the seller of the Retreat at Shadow Creek Ranch was listed as Inland Real Estate Group according to Real Capital Analytics. The online information source had recorded a previous owner of Bailey Farm apartments was a joint venture of Kennedy Wilson, Kenedix and Capri Capital Partners, who had purchased the property from Wolff Company in February 2014 for $91.5 million.

GlobeSt.com spoke with Joe Gorin, the co-head of the private real estate group at Goldman Sachs Asset Management in New York City. We asked what drove one of the world’s leading asset managers in these deals and what the acquisitions say about Goldman’s larger strategy.

“We’ve been betting on multifamily for a number of years primarily because of the affordability issues that have developed especially in major market urban centers,” says Gorin. “Although there is a lot of supply there are expensive price points so we are seeing a dearth of new supply in the first-tier suburban rings around these major centers.”

He has observed this across the US as a common dynamic. Goldman is looking to buy multifamily property with historic high occupancy for 10, 15 or 20 years. They are also looking at value add, developments that haven’t been invested in, so Goldman can improve the properties, make them more competitive and raise rent levels.

Key factors Goldman looks at with multifamily properties are (1) highly rated school systems (2) good access to major employment nodes and (3) affordable price points.

With the two recently announced acquisitions, these boxes are checked. Plus, Gorin cites Houston population growth over the next five years is projected at 14% compared to the national average which is about 4% over the same timeframe. He points out the population growth in Bothell, the Seattle suburb, has grown by over 14% from 2010 to 2017.

“They both offer attractive commute time. Shadow Creek is 10 miles south of the Texas Medical Center. That’s the largest medical center in the US,” Gorin says. Bailey Farm is 24 miles north of downtown Seattle.

Both projects were built in 2013 and are relatively modern, so Goldman won’t need to do major renovations. But they’ve allocated $4,000 to $5,000 per unit and money for minor refurbishments to make sure the apartments maintain their competitiveness. The complexes have popular amenities like pools and clubhouses, and have spacious layouts of units with balanced ratios of one, two and three-bedrooms. The two developments are in areas with retail options. Plus, there’s a relatively limited supply of new housing stock.

He comments that these investments are emblematic of strong fundamentals and a larger trend.

What’s shifting now is the affordability issue of single-family home ownership with millennials, according to Gorin. There’s more of a generational shift away from home ownership, of not wanting to be tied down with the obligation of home ownership and preferring the flexibility of rentals.

“There is clearly a fundamental shift here. Not to say single-family home ownership is dead. But in certain areas there is a much greater shift than we’ve seen historically and we don’t see it ending anytime soon,” he says.