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Who's Raising Capital Outside the Country Club

Chicago

Small owner/operators will continue to raise money (and golf swing tips) from their social circles this year, but The Chicago Corp managing director Trish Kelly is also hearing green shoots about more previously sidelined family offices gaining interest in middle-market real estate and platforms.

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Not funds, but platform investments that they can control, she tells us, which run the gamut from the major food groups to more unconventional buys. The trend is just beginning, but a good example would be a platform that invests in Class-B and Class-C multifamily assets—which has quite the income potential if you believe in the ability of the owner/operater to change the revenue stream from subsidized to market-rate (think hockey stick growth), she says. These ideas can start small and get big fast, like single-family rentals (below). A few years ago it was more of an incubator-type business, but the trend quickly caught hold and now REITs are buying up foreclosed homes to rent in great magnitude.

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Trish says there's debt financing for the typical asset classes as long as revenues are in good shape. For preleased or an acquisition/renovation project, the debt needs to be covered at least 1:1, a sign that traditional underwriting standards are back. Margins remain competitive from short-term bank debt, and the life companies are back in action after their usual Q3 stoppage. They’re looking to deploy a fair amount of capital and are especially active in the CBD. As a capital provider, Trish keeps her active deals close to the vest, but tells us she’s focusing on the Chicago area and greater Midwest. (With weather like this, who'd ever want to leave?)

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Capital and equity capital for large projects seems to be plentiful in the institutional space, she notes, meaning a $25M to $50M equity slug deployed in one deal. But investing solely in that space may leave institutions struggling to get the returns they need. “We don’t have inflation so rent bumps are hard to come by and the revenue side will only trend up slightly,” she says. Opportunistic development funds will continue to see strong returns, but the straight acquisition/renovation big projects have too many suitors. (What’s a girl to do?)