Meet The Investor Rolling Up The Profitable Assets Too Small For The Big Beasts
Big deals involving big numbers inevitably make big headlines. But one U.S. and European investor, backed by one of the most famous names in British real estate and raising capital from blue-chip U.S. pension funds, thinks there are big profits to make buying smaller assets in niche sectors that go under the radar of the giant funds that dominate today’s investment landscape.
“When we looked back over our careers, we saw that what was often the most profitable were those small and mid-cap real estate assets that you could roll up and sell on,” NW1 Partners co-founder David Boyle told Bisnow.
Boyle is a former head of real estate at Morgan Stanley Alternative Investment Partners, and his co-founder, Brad Beanblossom, spent 15 years overseeing the investment team at Sam Zell’s Equity International.
“We think we can find interesting value below the radar screens of the larger investors, buy from less-sophisticated owners, execute a value-add business plan and create a portfolio attractive to core investors.”
With the strategy in mind, Boyle and Beanblossom founded NW1, which has offices in London and Chicago, in 2016 with backing from Delancey, the fund manager led by veteran investor Paul Goswell and British real estate scion Jamie Ritblat.
Rather than raising single funds that then go out and buy multiple assets in different sectors, NW1 picks a theme and then raises capital to invest in assets in that particular sector. So far it has $300M in assets under management and four such strategies on the go, three in the U.S. and one in the UK, with more to come.
Its success has attracted the attention of some of the larger institutional investors that typically back private equity firms, and last month it completed a capital raising that Boyle described as a “catalyst” for the business. The company raised $100M of equity from a U.S. investor that it declined to name but that IPE said is U.S. retirement fund Texas Permanent School Fund.
Rather than investing in a single one of NW1’s ventures, the capital will be used across four or five different strategies, essentially providing seed capital, with NW1 then going out and raising further equity.
“We’ve been both general partners and limited partners in the fund world in our time, and we’ve tried to become a new model,” Boyle said. “We don’t do many of these strategies, one or maybe two each year, and we vet them carefully.”
The first chunk of the new equity has already been apportioned: $25M will be utilised in a strategy to buy smaller multifamily assets in areas of Brooklyn, New York, like Park Slope, refurbish and modernise them, and then sell them on as a portfolio. The portfolio, which will be bought with sector specialist partner Greenbrook, could eventually grow to $150M.
“You can buy these beautiful old brownstones and add modern amenities,” Boyle said of the strategy. “We’re seeing a lot of demand for these properties: People are focusing on less dense areas. The type of person who lives there is in their 30s or 40s and wants to put down roots. They like the neighbourhood, but it is still very expensive to buy there, so they rent for longer.”
Past strategies include urban retail assets in Washington, D.C., and last-mile logistics in London, where it has built up a portfolio of around £100M that it is now looking to sell, given the weight of investor interest in the sector.
New strategies in the pipeline include a similar last-mile logistics vehicle, this time focused on Spain, and a U.S. strategy focusing on outdoor storage. Outdoor storage, essentially land not covered by buildings that is used for storage of anything from trucks to building materials, is a niche sector attracting increasing interest from big investors.
“If you have a third-party logistics operator, they often need to park their trucks somewhere near to their main logistics facility and can use this area to load parcels from one truck to another,” Boyle said. “The yields are really interesting, and they are not making any more of it — municipalities are not giving permission for new sites.”
The individual sites are small, the kind of granular portfolio it takes time and effort to build up but that is potentially valuable once assembled. It is spotting these niches and putting this work in that Boyle and Beanblossom hope will give them headline profits.