RealSource Properties is setting its sights on significant growth in 2023, citing strong lender relationships, a stable existing portfolio and the ability to tap into the continued supply-demand imbalance for multifamily properties across the US.
The Salt Lake City, Utah-based firm, which implements a data-driven acquisition strategy, focuses largely on the multifamily sector in growing US markets. “We have very good relationships with our lenders, and because our modelling is very conservative, we’re less likely to find ourselves in deficit situations,” Joe Hart, director of capital markets told Real Estate Capital USA. “The only real issue we have, which we have no control over, is where interest rates go, and everybody’s in that same boat.”
The growth plans come at a time of ongoing market uncertainty following the Federal Reserve’s latest rate hike and the collapse of a series of US banks in March.
As part of its growth plans, the firm also aims to raise new capital and expand its investor scope to target foreign investors. The firm targets institutional investors, including LLC’s and small pension funds, as well as larger investors that may participate in a particular property as a joint venture.
“Our goal this year is to grow our assets under management to in excess of a billion dollars,” said Hart.
The firm, which currently has around $580 million of assets, has already kicked off initiatives surrounding these objectives, working with financial planners and advisors to broaden its capital raising capabilities.
Despite current volatility, RealSource’s medium-term outlook is a positive one. Hart also believes the first half of 2023 will be much different than the second half.
“We believe it will get significantly better in the second half of 2023. We [also] believe that the direction of our financial side is going to lend itself to what we refer to as highly distressed opportunities later this year,” Hart added.
One reason behind the firm’s sanguine outlook on its own growth prospects is a decision to lock in long-term debt at historic low rates prior to the current cycle of interest rate hikes.
“The cost of being in this industry has gone up significantly over the past year or so,” noted Hart. “As such, as many in the industry are now seeing significant rate resets on their debt.”
He continued: “We have the advantage of a significant portfolio in fixed low-rate contracts – thus a lower pain of our outstanding debt being increased – thereby affording us less pain, a more predictable operational revenue, and more consistent distributions.”
Hart also believes those who were more aggressive and had much better return profiles over the last few years may find themselves in a more difficult financial situation this year.
“[This situation however] might offer us an opportunity to go in and buy some really good properties at substantial discounts to replacement costs,” he said.
RealSource focuses on multifamily due to the simple fact that the sector is undersupplied.
“Simple economics will tell you if you don’t have a supply but you have a lot of demand, you have pricing power,” said Hart. “We have a growing population base, we have growing household formations, we have accelerated home pricing, so people just can’t afford to buy their first home today. But at the end of the day, everybody needs a place to rest their head, everybody needs a home.”
Hart believes with the current rates it could take seven to 10 years for supply to catch up with today’s demand. “[This means we have] got some great tailwinds to help us along,” said Hart.