How Multifamily Developer Alterra Property Group Became A Big Player In A Niche Industrial Property Type
Plenty of commercial real estate companies operate in multiple asset classes, but few have a portfolio like Alterra Property Group.
The Philadelphia-based company, founded by managing partner and CEO Leo Addimando, had over a decade of experience developing multifamily buildings exclusively in Philadelphia when it entered the realm of industrial outdoor storage in 2016. Six years later, it has a national, institutionally backed portfolio of IOS properties, but is still a Philly-focused multifamily developer.
The catalyst for Alterra's expansion was when Addimando's friend Frank Bardonaro called on behalf of his company, Maxim Crane Works. Maxim was being forced to vacate a lot in Boston and Bardonaro was having no luck finding a new place to store cranes after a year of searching.
"After several failed attempts with some large national companies, I remembered that Leo spent a lot of time in the Boston area while attending Harvard, so I asked him for some help," Bardonaro told Bisnow in an email. "He quickly responded, put us with some local contacts and we had multiple options within a month."
Today, Addimando admits he knew little about Boston as a real estate market and even less about a little-known niche of industrial property. But Alterra's acquisition of the site for leasing to Maxim led Bardonaro to realize the benefit of focusing more capital expenditure on his company's vehicle fleet. In 2018, Alterra acquired 17 properties from Maxim across 12 cities in a sale-leaseback deal at the portfolio level.
“We didn’t really know what the endgame was at the time, but once we closed on that sale-leaseback portfolio transaction, we knew it wasn’t going to be just a single-tenant business," Addimando said. "So we started searching for data on how big the market was and tried to create an investment thesis for it.”
At first, Alterra leaned on friends and family to help finance its acquisitions, eventually getting an investment from a family investment office. By December 2019, Alterra had formed a $300M joint venture backed by JPMorgan Chase to acquire IOS properties. Six months later, it secured a $100M credit facility with Morgan Stanley for the same purpose. Late last year, Alterra launched its first discretionary fund in partnership with New York-based Park Madison Partners. By mid-March, the fund had closed after raising $524M, well above its goal of $400M.
Over that time period, industrial outdoor storage exploded in popularity as an investment target, enjoying both the relentless demand for logistics space in general and advantages specific to the property type.
“Supply of IOS is constrained for a few reasons," said Matt Pfeiffer, Addimando's fellow managing partner who runs the day-to-day operations of the IOS business. "There are the zoning restrictions, and traditional industrial investors have converted a number of IOS properties. Municipalities aren’t creating more outdoor storage, but every MSA needs it for its supply chain infrastructure.”
But Alterra's multifamily business didn't just tread water. Addimando remains deeply involved in the company's strategy in the sector, and he served as president of the Building Industry Association's Philadelphia chapter last year.
“I know where to be pushing rents and where concessions are needed" across Alterra's properties, he said. "We’re evaluating development opportunities in other markets right now, taking the modular development approach we’ve honed in Philadelphia. So far, we haven’t felt like conditions are right to expand into a new market; we’ve been sort of waiting for a correction on that front.”
In addition to helping him assess the viability of growing the multifamily business, Addimando's exposure to so many other markets gave him perspective on what is possible and sensible in Philadelphia.
“Necessity is the mother of invention," Addimando said. "In the Southeast and the Southwest, there’s such population growth that rents are skyrocketing, so they pay what they need to pay in order to get new things built. Without the same rent growth up here, that equation is very challenged.”
Noting that the staggering amount of capital looking to invest in value-add multifamily has all but erased the possibility of getting a satisfactory return, Alterra has committed to modular development as a way to control and reduce construction costs, betting that when it stabilizes and sells a property, investors won't care how it was built. In March, Alterra sold a 250K SF building in West Philly, one of the largest modular apartment projects in the country, for $88M.
“In developing and managing properties hyperlocally like we’re doing in Philadelphia and Greater Center City, you can take for granted that you know the local laws and players," Addimando told Bisnow. "When you try to scale in a different asset class nationally, it’s almost like you’re starting over, with different capital providers, different people doing deals.”
Only a handful of Alterra employees have duties across both verticals, while around 50 focus exclusively on multifamily and 15 or so do the same with industrial outdoor storage. Though Pfeiffer leads the day-to-day of the IOS operation, Addimando himself was forced to evolve how he worked in order to keep both ventures successful.
“Am I spending five fewer hours a week than I used to on the minutiae of multifamily?" Addimando said. "Yeah, but it’s five hours that I shouldn’t have been spending there to begin with.”
Alterra focused on hiring and elevating "high-ceiling individuals" to handle elements of both multifamily and industrial outdoor storage that Addimando might have previously done himself, he said. Based on Alterra's continued success in fundraising for IOS and executing multifamily projects in Philly, its best return has come from the investments it made in talent.
"Once you learn that you are dealing with people that always find a way to get it done and do it the right way, I think you can rely on them to expand into more regions or areas of expertise," Bardonaro said. "Clearly, they not only succeeded in Boston, but ultimately handled projects for us on a coast-to-coast basis."
CORRECTION, APRIL 14, 10:15 A.M. ET: A previous version of this article misstated the nature of its first deal with Maxim, what year Alterra acquired Maxim's portfolio of industrial outdoor storage properties and the total value of its most recent fund. This article has been updated.