How Origin Outperforms Other Multifamily Funds
Private real estate has come out of the pandemic ready to deal: Preqin data shows global private equity real estate funds are sitting on more than $300 billion in unspent cash. A good chunk of that money will go to multifamily real estate, which has emerged from the pandemic as a winner. Multifamily occupancy and rents are on their way to a full recovery after a harrowing year, CBRE noted in its 2021 Americas Outlook.
With so much private capital chasing real estate deals, it’s important to find multifamily managers that outperform a crowded field. An analysis of data from Preqin, the leading provider of information on alternative investments, shows that, at Origin, we produce better real estate fund returns than the vast majority of private real estate sponsors. In fact, our performance across our first three funds had us in the top decile of Preqin-ranked best performing global private real estate fund managers, as of September 2021.
Preqin’s data substantiates that we generate more appreciation and income from our assets than almost all other managers, yielding higher IRR and equity multiples. Knowing how we generate such high performance can help investors understand what to look for when comparing investment opportunities. Here’s how we generate greater real estate fund returns for our investors.
Finding High-Performing Markets and Deals
Asset selection is extremely crucial to generating high returns. Our analytical approach starts with picking the best markets for real estate investing, places where employment and demographic trends point to better opportunity, especially in rent growth. We have been refining our market selection process for years, and built a proprietary model that utilizes machine learning and quality data to provide us with the information we need to find the best markets for investment.
Our database uses millions of data points that cover both market-level and property-level statistics. We develop block-by-block forecasts and utilize insight on emerging areas, including new markets with potential for catalytic growth. Our acquisition and investment management teams then gather rental property underwriting data for buildings on and off the market. Looking at hundreds of properties over time, we spot trends in such factors as rent per square foot, lease renewal rates and rent growth and validate them at properties under Origin management. But predictive data only points analysts toward where to invest. Because our multifamily real estate specialists live in each market, we marry our AI with boots on the ground experience, making contacts to find the best deals.
In a sign that our high fund performance will endure, rents in regional hub cities are staging a stronger recovery than large gateway markets. In fact, all Origin properties show a rebound in effective rental rates after tenant incentives. Revenue per square foot is up 6.3%, compared to 4.2% for a competitive set.
Scoring Big From a Multifamily Management Playbook
Finding the right places to invest is only the beginning. Competing against so many other properties, our assets must outperform the competition in each market to yield the best possible returns. First, we analyze each market’s demographics and psychographics and make sure that our properties have the physical attributes to attract a growing tenant base to sustain demand over 10 years of ownership.
Our investment management team attracts new tenants to our assets with a compelling and versatile digital presence for our properties, from virtual or self-guided tours to detailed listings and enthusiastic online reviews. A strong virtual presence reaches prospects at all hours, whenever they’re on the hunt for an apartment. We work with property managers, as well, to share best practices on showing the properties in their best light and provide excellent service to retain tenants that ranges from implementing proactive building maintenance to fostering engaging personal interactions. Forth at Navigation’s comprehensive online presence and attentive onsite staff contributed to a 35% leasing rate months after the Houston property’s 2021 opening.
People that rent by choice are making lifestyle decisions that go beyond checking the boxes on a list of amenities. We hire best-in-class property managers in each market but work with them to create, share and reward activities that bring our residents closer together. Our intent is to wow tenants with excellent service at every level.
At 511 Meeting in Charleston, South Carolina, tenants celebrated Shark Week with a poolside screening of “Jaws,” the water dyed red to reflect the movie’s retro menace. Managers do more than respond quickly to service requests; they’re always planning new and creative events, looking for feedback and asking for reviews, developing a rapport with residents that email marketing can’t provide.
We also look for revenue generating services that save our residents time and money, and to prove our value over the leasing period. Community TV and internet connections are a turnkey service that we can offer at a lower price than cable providers. Maintenance tune-ups on appliances and fixtures are scheduled to replace filters and handle other routine issues, with managers leaving a thank-you basket for residents and extending an offer for a free service or unit upgrade to enhance the living experience and add tangible value to the property. A smart door lock or thermostat, customized closet systems, professional grade kitchen faucet, or simply a free dog walk or an apartment cleaning can go a long way towards building resident loyalty, reducing the high costs associated with turnover
At renewal time, these touchpoints set the property apart, producing higher renewal rates. Our portfolio’s year to date change in rents, when one tenant moves out and another moves in, is 9.1% vs. 3.5% among our competitors, and our rent increases on renewals average 4.4% against a benchmark of 2.7%. Plus, our portfolio’s Online Reputation Assessment score exceeds the national average by 22% and a quarter of our portfolio ranks in the 99th percentile of all properties nationwide.
Effective Risk Management Creates Wealth
Our rigorous risk management practices have also contributed to our consistent returns, with us never experiencing a loss on any fund asset over the past 14 years. Risk management begins with the significant co-investment that my co-CEO and I invest in all our funds. Typically fund managers invest 1-2% into their own funds, whereas my partner and I averaged a 10% co-investment across Origin Funds I, II and III. This co-investment aligns us with our investment partners.
We also ensure that all our investment partners receive a full return of capital and their preferred return on equity before Origin receives any incentive pay. At the same time, we place each of our investments in its own special purpose entity and never cross-collateralize the debt, limiting the debt covenants to that entity. We also never guarantee debt at the entity level or the fund level.
Lastly, we run hold/sell analyses each quarter on every Origin Fund asset, which allows us to determine whether we should hold or sell an asset based on the prices in the market relative to the point forward expected value of holding the asset. Tax considerations are factored into this analysis, as we always aim to provide our investors with the best after-tax returns.