Atlanta-based CARROLL completed fundraising for a $340 million multifamily fund in August, closing its largest institutional vehicle to date into stabilizing debt markets.
But even with a more predictable lending environment, CARROLL is still expecting to see a disconnect between buyers and sellers – partly driven by the availability of debt and rates – through the end of the year.
“We are expecting to see a lot of product launched in the fall, which will mean a back-and-forth on pricing and much of that is driven by debt,” says David Perez, president and chief operating officer of CARROLL. “Once we started getting lots of quantitative tightening and movement from the Federal Reserve, the dynamics in the market changed significantly. But the fundamentals of the business have not changed.”
The fundamentals of what CARROLL does have not changed either, although the firm has expanded into Las Vegas and Phoenix and launched a development group to buy land in markets where it has conviction, Perez says. The firm seeks deals larger than $50 million, or about 250 units, and targets value-add or core-plus deals.
Las Vegas and Phoenix were natural areas of expansion for CARROLL. “These markets have similar characteristics – they are business friendly and have strong macro tailwinds with migration and a rise in housing demand,” Perez says.
While it has worked frequently with all kinds of lenders in the past, CARROLL is finding Freddie Mac to be a reliable partner. “The debt markets have been challenging and that is really pinching financial returns,” Perez says. “It is also a question of who is available to lend, and we have found Freddie Mac has come to the table with some very attractive pricing and has really been able to provide a backstop.”
The firm has so far bought 14 properties valued at $1.3 billion via Carroll Multifamily Venture VII, funded by a slate of institutional investors, with a projected $5.5 billion of buying power.
“We are not trying to own trophy towers in downturn urban environments. We are trying to invest in housing people really need and that we can improve over time,” Perez says.
The closing comes amid a record year for CARROLL, with total transaction activity of more than $2.8 billion in the first eight months of 2022. In addition to its investment activity, the firm has also sold $1.6 billion in real estate across 18 properties, which includes a nearly $900 million portfolio disposition with partner PGIM Real Estate.
“A lot of the things on the sell side had matured during the past four to five years and that was why we were exiting – it was time for us to ring the bell,” Perez says. “We had some great stuff that we bought at the end of 2017 and exited on this year.”
Perez is optimistic about the firm’s recent activity and is also hoping for a more rational market through the end of 2022 and into the coming year. “In the first half of the year, anything we bid on was getting over bid by 10 percent, which led us to bow out of most things. Still, we are happy with what we acquired throughout the first eight months of the year, despite significant competition,” he says.