Steadfast Forms Capital Markets Group

[IMGCAP(1)]NEWPORT BEACH, CA-Steadfast Cos. has formed a new securities and financial services division, called Steadfast Capital Markets Group, that will be responsible for creating both private and publicly registered investment vehicles to acquire commercial real estate across all asset classes. Aaron G. Cook, president of the new division, tells GlobeSt.com that the company sees current and future opportunities to acquire quality properties in a distressed market and hopes to deploy approximately $1.5 billion in capital over the next 42 months.

[IMGCAP(2)]Steadfast has named 38-year industry veteran J. Grayson Sanders as CEO of the new division, with responsibility for the creation of investment products and overseeing the sales and distribution efforts for Steadfast Capital Markets Group (SCMG). Sanders joins Steadfast following his tenure at CNL Fund Advisors, a registered investment adviser, where he was president of both CNL Fund Advisors and CNL Capital Markets. Before joining CNL in 2004, he served as managing director of marketing with AIG Global Real Estate Investment Corp. in New York City, where he managed product development, capital formation and investor services for a variety of international real estate funds.

Cook, who has more than 13 years of securities and financial services industry experience, was formerly EVP and national sales manager for a national real estate sponsor, and managing director and national sales manager for Triple Net Properties LLC, where he and his team reorganized and developed the wholesale distribution systems.

Rod Emery, founder and CEO of Steadfast Cos., describes current conditions as “an opportune time in this real estate cycle” that offers opportunities to invest in “all asset classes in a distressed market.” Cook points out the distinction between “distressed market” and “distressed assets,” explaining that Steadfast sees opportunities to acquire what are basically good, solid properties in a distressed market.

“We’re looking at assets that, based on our going-in acquisition price, are going to be able to provide good, solid income today,” Cook says. He explains that many properties, although they are well-located with rent rolls producing steady cash flow, were acquired at the top of the market by highly leveraged buyers who will face difficulties trying to refinance when loans come due. As opposed to properties that are distressed in the sense of weak fundamentals or low vacancies, “We’re talking about good assets with distressed debt,” Cook points out. Steadfast, like many if not most market observers, believes that the commercial real estate industry is just in the beginning stages of what will be a wave of acquisition opportunities as these loans come due.

Steadfast’s new division plans to invest in markets throughout the US, most likely starting with multifamily and industrial assets. “Today we are seeing opportunities in the multifamily and industrial sectors,” Cook says. “However, we believe there will be opportunities across all asset classes over the next 36-48 months.”

In the multifamily market, Cook says, “We are just starting to see cap rates expand to some degree,” producing opportunities for investors to acquire well-located class projects that have a chance to maintain good occupancy and likely will fare better than many other assets as the economy either flattens or continues to decline. “We don’t think that multifamily will be hit as hard, and we think the next 18 to 24 months will present good opportunities in that market,” the SCMG president says.

If the economy moves into an inflationary cycle, he adds, multifamily properties will be in a position to raise rents faster than any other sector, with the possible exception of hospitality. Industrial properties, with their typical leases of three to five years, also offer the potential to move rents quickly during inflationary times, Cook explains. “As an investment strategy, capitalizing on multifamily initially and then adding industrial tends to make a lot of sense from our point of view,” he says.

The SCMG business plan will involve buying, operating, managing and holding properties until the market turns around. “There are no assurances that we will get there, but we are looking to deploy somewhere in the neighborhood of $1.5 billion in capital over the next 42 months,” Cook says. In terms of exiting from the investments when the time comes, the company will consider a number of different strategies, ranging from a systematic liquidation to monetization or merger. Until then, Cook says, “This dislocation is creating probably one of the greatest investment opportunities we will see in our lifetimes.”