How a Taurus JV is sourcing, financing a new class of multifamily assets

Lenders are starting to better understand the dynamics of energy retrogrades and giving credit for this in pricing.

Taurus Investment Holdings, LLC and Aegon Asset Management last month launched a roughly $500 million joint venture to acquire value-added multifamily properties with a bigger picture plan to renovate and reduce the energy consumption of those assets.

The partners will work with Taurus subsidiary RENU Communities to improve energy efficiency, increase onsite energy production via solar panels and provide better air quality for tenants. While this energy retrofit strategy is not a new one for Taurus, the company is seeing more understanding and interest from lenders about what it is doing.

“The interest is evolving week by week, month by month on the lending side. We just closed on a couple of assets that are also falling under this retrofit bucket and we are finding lenders are very attracted to it,” Peter Merrigan, chief executive officer and managing partner of Taurus, told Real Estate Capital USA. “I can’t put a number on it, whether it is 20 basis points better, for example, but we are able to get very attractive terms for what we have been doing that is energy focused. We feel as if we are helping to educate the lenders as we work on deals with them.”

The venture with Aegon, arranged by Evercore, stems from a meeting of two like-minded investors with a similar focus on Sunbelt markets. The partnership has so far seeded one asset in Orlando and is working to build out the portfolio, working through RENU as it does on projects like this because of the complexity of these renovations.

“We had a lot of very interesting conversations with potential investors and Aegon really stepped up and embraced the concept and the idea. They were active in the multifamily markets we were already active in,” Merrigan said. “It was a logical marriage of two groups to deploy this strategy.”

Taurus found from the start its energy initiatives benefited the profitability of its projects. “When we did our initial project, we didn’t believe it would have a net drag on returns – we were looking to increase the returns and we have been successfully able to prove that thesis in a few cases,” Merrigan said.

Increasing the energy efficiency of properties is a long-term concern for the US commercial real estate market. “There are questions about energy independence, resilience and renewable energy, and how that is the next bring thing for the global commercial real estate market,” Merrigan said. “Real estate’s direct and indirect impact on energy usage is significant. Reliance on fossil fuels leaves us vulnerable to shocks, be it political or shocks of another kind.”