Founders Grove Capital Newsletter May 2018
Founders Grove Capital is focused on acquiring the best, most promising multifamily investment opportunities in Dallas-Fort Worth. The demand for multifamily investments in DFW is as competitive as it’s ever been and rightly so, thanks to tremendous population growth and new job creation. We have just completed funding for two off-market properties totaling 564 units, creating an opportunity to maximize returns by reducing variable costs through the consolidation of operations.
North Arlington Portfolio Deal Highlights: The North Arlington submarket ranks #1 in the DFW metro and #12 in the entire nation for three-year projected rent growth at 5.4%/year. North Arlington’s apartment market has seen strong demand over the last few years, but particularly in 2016 and 2017 as rent growth was 5.7% and 5.9%, respectively, while vacancy dropped to 3.1% in 2017 from 3.6% in 2016. Demand in the overall Fort Worth area was driven by employment growth, which was 2.6% in 2017, well above the US average of 1.7% and above the growth rate for Dallas, 2.2%, although Dallas has also had strong job growth in recent years. Both metros are expected to see continued healthy job growth over the next few years.
Insight into Real Estate Returns: A recent article in Forbes analyzed Prequin ROI data and found that larger real estate funds don’t always garner the best returns. The reason? Smaller investment funds aim to establish a professional reputation and build a solid working relationship with its investment partners, whereas larger funds must impress shareholders. Similar to how a credit union can deliver customers a better experience than a national bank, smaller real estate funds are able to spend more time matching their investment partners with an opportunity that aligns with their goals—instead of any opportunity that brings the fund revenue.
Investment Insight: Fees: Why do fees differ so dramatically between investment funds? There are a number of reasons, but chief among them is the fund’s size. A larger fund partners with multiple other firms in each region of operation and potentially in each area of expertise, so typically, when you invest with one of these funds, the fee you pay must be high enough to pay each partner its share. A smaller partner that specializes in a given market or investment type does not have the same support needs, so you’ll usually find lower fees for these transactions.
Outlook for the Industry: A recent survey of institutional investors found that 72% anticipate that high prices and valuations will be a key issue for real estate investments in 2018. Finding the best deals and profiting from them will require intimate knowledge of industry and market trends. Two promising places to start your search? The DFW area and Founders Grove Capital.