Pennington Partners & Co, a Bethesda, Maryland-based multifamily office, has hired a team from Walker & Dunlop Investment Partners to head a new real estate vertical. The group will make structured equity investments, originate senior secured loans and complete opportunity zone investments in residential and commercial real estate properties across the US.
Pennington Real Estate Partners is part of a long-term, wide mandate for Pennington, with the new team already launching an opportunity zone fund. The firm sees a continued dearth of capital which it is trying to fill, noted Alex Rongione, managing director.
“We’re approaching the current market with structured equity. From our perspective, traditional sources of capital are very limited right now, and this dislocation has led the market to be significantly repriced,” Rongione said. “Capital scarcity at the moment has created a unique opportunity for limited partners who are willing and able to conduct transactions.”
Rongione and Taylor Coe, also a managing director, came on board at Pennington last month after filling similar positions for many years at Denver-based Walker & Dunlop. The duo is familiar with transactions that include structured equity, preferred equity, non-participating preferred equity and hybrid structures with several of these characteristics.
“In today’s environment, you can get a priority return on capital as well as upside protection,” Rongione said. This provides some of the benefits of both debt and equity. “We are really trying to lean into that opportunity because of the characteristics of preferred equity – which is like having debt with the potential upside – while still investing in quality projects over the long-term in the residential and industrial sectors.”
He continued: “There are higher quality sponsors, projects, and locations available today than there otherwise might be in a normal operating environment. You can earn the types of returns you would normally earn on equity with preferred equity and mezzanine structures right now – which is a very attractive proposition for a lot of investors.”
The mid-market specialist will source deals from its existing network, as well as relationships it has with brokers that operate in the opportunity zone space and the broader debt and equity markets. “Lenders are also very aware of what is going on with their portfolio and can be a great source of deal flow when the market has repriced significantly,” Rongione said.
Rongione anticipates the firm will remain focused on the mid-market, although it will have the ability to grow with its clients. “This part of the market tends to be less trafficked, there is more information and asymmetry, and it is more fragmented,” he added. “We believe this all leads to more opportunity.” The firm will target transactions averaging around $15 million and can invest across the capital stack.
“The nice thing about being able to play across the capital stack is that there are a lot of ways to participate in the deal and you don’t need to be a part of the equity. You could provide a preferred equity investment that sits atop of the senior loan, and it could be $15 million in a $100 million transaction,” Rongione added.