Ivanhoe Cambridge, which in June formed a programmatic lending platform with Los Angeles-based Mount Auburn Multifamily, is doubling down on that relationship with an $150 million preferred equity investment.
The Montreal-based investment management company invested a similar amount in Mount Auburn to provide preferred equity and mezzanine debt on US apartment projects in high-growth markets. The structure of the investment – and its target – reflect a bigger theme for Ivanhoe Cambridge, said Charles-Antoine Lussier, senior vice-president.
The latest investment gives Ivanhoe Cambridge exposure to a portfolio of more than 10,000 units in markets that include Atlanta, Austin, Charlotte, Columbus, Dallas/Ft Worth and Denver. But bigger picture, it gives the firm access to income-producing assets that it believes will perform well over the long term.
“The overarching context of what we are doing is based on the fact that we are not new to the sector and have been investing in multifamily since the 1990s,” Lussier said. “If you fast-forward 25 years from that first investment, we now have 45,000 units globally.”
Ivanhoe Cambridge was an early institutional entrant into the multifamily market, going in at a time when more institutions were focused on office assets.
“Ten years ago, multifamily was seen as more of an alternative asset class and institutions were buying office buildings and some retail,” Lussier said. “But three years ago, more institutions started to understand that the office market was struggling and started to scratch their heads and do more for-rental multifamily at that time. We are in a stable basis in many markets and how we can add to a foundation that is already strong is by reaching into other sub-markets, regions and cities.”
With a preferred equity investment, Ivanhoe Cambridge is investing at the GP level.
“It’s a nice way to continue a relationship with a group,” Lussier said. “You can’t really look under the hood without looking behind the wheel. It makes sense financially and the risk is much lower than being in an equity position. It’s well-paid and we can start slow, although it’s still a big amount. It also allows us to see how much more we can do with them.”
In addition to the income-producing aspects of the Mount Auburn portfolio, the geography appealed to Ivanhoe Cambridge.
“When we started to meet the people at Mount Auburn, we blocked out three hours with them,” Lussier said. “And when we started talking to them, we discovered that they were present in other markets we were ready to embark in. They were already following the trends we were seeing. We did not invent the STEM market strategy but for us, it was nice to see that they were already present in those markets, had a nice track record and was a company that wanted to be nimble and aggressive.”
On the fund side, the firm does have some investments in funds that solely target debt, including a partnership with Walker & Dunlop Investment Partners that targets lending mostly stabilized assets.
“It’s like being a merchant preferred equity investor and targeting bite-sized pieces of $5 million to $25 million. It’s also a way for us to access a good risk-return type of exposure,” Lussier said. “We would not take a preferred equity position on assets that we wouldn’t be okay to own. If things go sour, we’d be able to take the keys back and manage the relationships with the senior lenders. That, coupled with the fact that we have some good relationships with a multitude of operators, we would be able to have someone manage the property the next day.”
Globally, Ivanhoe Cambridge has a very ambitious plan for the multifamily sector. “We are looking to increase our exposure and find ways of being able to deploy with an operating partner when the time is right,” Lussier said.
As Ivanhoe Cambridge looks to do this, Lussier noted that there is a rising trend in which more well-capitalized lenders and borrowers are working together.
“The relationship part is so important. I often speak with other institutions and am really trying to foster that relationship, particularly for very big assets,” he said. “The conversation is often like, ‘We have this very big asset, maybe I’d like to syndicate half of that and maybe there is something you have too much of.’ There is also so much capital that we often stumble across the same half a dozen guys of our size and it’s better to band together than pay the top price and compete against each other.”