When Private Funds Go Institutional

LOS ANGELES—Beach Front Properties, a multifamily investor known for its $10 million mircofunds that invest in workforce housing in tertiary markets, will begin targeting institutional investors in its next fundraising round. According to Kyle Kazan, the company's president and founder, the company has come to a point where it needs to go institutional to continue to grow. Kazan has a steady track record with an average return of 19% to his investors.

“I have been in business for 16 years, and have always stayed with high net worth individuals in the past,” Kazan tells GlobeSt.com. “Now, I am going to target institutional capital as my next step, and I'll change the fee structure to attract institutions.” Kazan didn't give specifics on how he would change the deal structure, but he did say the next funds would be $25 million to $100 million vehicles and would continue to target workforce housing in underprivileged and low-income neighborhoods.

Kazan attributes his significant success to his conservative investing style. “I can point out more deals that I probably should have done but didn't than deals I wish I hadn't done,” he says. He typically doesn't leverage more than 40% debt on any property and usually invests additional capital on minor renovations, saying that a nice building is “good for the neighborhood, good for the residents and great for investors.”

His real trademark, though, is his willingness to go into gang-infested areas and clean up the building. A former police officer with training in how to deal with gang problems and violence, Kazan says that he has gotten a lot of great deals on properties because other investors were either afraid or ill equipped to deal with the gang problem. He works with the local police department and ensures that he has working security doors in his buildings and has onsite property managers so that he has eyes on the ground. Some of this, he says takes involvement from the city. When he goes to a view a potential investment, he looks for details like working streetlights and landscaping to show city involvement in the neighborhood.

Kazan's latest fund, which recently closed, raised $11 million all through word of mouth. He had targeted $10 million, but had to expand the fund because of the overwhelming interest. When playing with institutional capital, he expects to generate similar high double-digit returns that he has been hitting with his private funds. His current portfolio has properties located in Long Beach, where he is headquartered, Anaheim, San Pedro and Hawthorne, as well as one-off properties in Atlanta and abroad.