Nashville-Based Firm Raises $1.1B Multifamily Fund As Private Equity Circles Sector
Covenant Capital Group closed on the Nashville-based private equity firm’s largest fund in its 25-year history targeting multifamily assets.
The investment firm’s Covenant Apartment Fund XII raised $1.1B to target value-add acquisitions, including $270M for a sidecar fund focused on affordable housing. Covenant has already deployed more than $300M from the fund in 54 deals.
“The United States continues to have a shortage of middle-market apartments and Covenant Capital Group intends to provide an attractive solution for renters along with top tier returns for investors,” Covenant co-founder Govan White said in a statement.
Covenant's primary fund is targeting underperforming properties across the Sun Belt that can benefit from renovations and operational improvements to create value. It plans to acquire developments and complete wholesale renovations of units and property amenities within six to nine months, White said in an email.
“By utilizing the Covenant process of full renovation in year one, we can typically acquire interior components in bulk at a discount to retail prices through the strategic procurement relationships that provide economies of scale,” he said.
The latest fund’s early commitments include $240M for 14 apartment communities. The Covenant Affordable Housing Fund, created to preserve existing affordable housing locations throughout the country, has committed $94M across 40 projects, some of which have fewer units than Covenant’s typical investments, White said.
The affordable housing sidecar fund was open to investors in the primary fund and builds on a smaller portfolio of similar acquisitions that Covenant previously made to test its preservation investment hypothesis.
The private equity firm has focused on value-add multifamily since its founding and has more than $2.4B in assets under management, representing more than 22,000 apartments concentrated in the Southeast and Texas. Covenants’s last fund closed in January 2023 with $748M raised, ahead of its $600M target and a then-record for the firm.
The multifamily sector is in a transitional phase that has lured in huge amounts of private capital looking for deals. Rent growth has slowed nationally amid a historic wave of new supply, and some of the markets that were pandemic-era darlings are seeing rents fall the fastest.
Multifamily REITs have been squeezed by weak public valuations, leading to a swath of consolidation, liquidations and buyouts. Earlier this month, an activist investor in Veris Residential went public with its calls for the REIT to put itself up for sale, citing the more than $1.6B raised by Elme Communities through asset sales and Apartment Investment & Management Co.’s plan to sell itself for parts.
Invesco and Bozzuto have partnered to line up $1B for potential multifamily acquisitions, and a Mesirow Financial subsidiary raised $1.2B for the sector in May. San Francisco-based TPG Real Estate started the year with a deal to acquire a majority interest in homebuilding giant Lennar’s multifamily platform that included a $1B capital commitment.
