Origin’s Growth Fund IV Capitalizes on Growing Demand for Multifamily  

Topic:  • By Michael Episcope • January 20, 2022 Views


Accredited investors who want to diversify their portfolios and maximize capital growth through one of the fastest-growing sectors in real estate can do so now with our newest Fund: Growth Fund IV, which focuses exclusively on high-potential ground-up developments in the southeast, Texas and southwest markets.

The $250 million, closed-end Fund will invest up to $1 billion in multifamily development projects across the fastest-growing cities in those regions. It offers:

  • Target net IRR of 14% to 16%
  • Target net equity multiple of 1.7x to 1.8x over four years
  • Optional hold period at the end of the Fund’s life to generate a target net annualized total return of 8% to 11%

How Growth Fund IV is Different

Growth Fund IV stands apart from other investment vehicles by limiting the initial term of the Fund to four years after the end of the capital raising period. That’s among the shortest terms in the market. Investors will have the flexibility to remain invested and continue to reap tax-efficient income after development portfolio is stabilized. The Fund is structured to maximize wealth by allowing investors to realize substantial appreciation in the early years of the Fund and minimize tax consequences by continuing to hold. It will be diversified across 10 to 12 ground-up projects with proven partners, and it already has secured its first project. More deals are closing in the first quarter.

Watch our recent webinar with Origin Co-CEO David Scherer and Managing Director of Acquisitions Tom Briney, who provide deeper insight into the Fund’s deal pipeline and overall strategy, and answer questions from attendees.

Our Strategy: High-Potential, Ground-Up Assets

According to CBRE, the multifamily sector is set for a record 2022, with a record-high construction pipeline and demand. We focus on multifamily because we believe that it’s a sound investment that can perform well even in uncertainty.

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In the current market environment, investing capital in developing a property from the ground up offers accredited investors some of the highest risk-adjusted returns in real estate compared with a previously built asset. Currently, ground-up developments are more opportunistic but offer higher potential returns than, for instance, core plus (growth and income investments of high-quality, well-occupied properties that only need light improvements) or value-add (growth properties that require more investment to improve and add value). Both types are increasingly expensive to purchase and maintain. That’s why our Growth Fund IV is focusing exclusively on these types of developments.

Realtor.com forecasts rental rates to increase 7.1% across the U.S. in 2022—after a year when rental rates already saw double-digit increases—as demand continues to outpace supply. We have selected our markets partly because of their lower rent affordability ratios relative to other markets. That ratio, which includes rent expense as a percentage of annual adjusted gross income, is one of the best indicators of the ability to raise future rents. That, in turn, translates into higher investment value down the line.

Co-CEO Michael Episcope explains why our investment strategy focuses on multifamily ground-up development.

Our Advantage: Machine Learning, Local Insight

To find the best investments, our in-house data scientists built Origin MultilyticsSM, a platform that applies layers of building- and block-specific data points directly into our proprietary models. This research, along with the insights gathered from our own real estate specialists and their relationships with local developers and experts, helps us pinpoint the highest-potential opportunities.

Origin’s Growth Fund IV will invest in Class A developments including garden, low- or mid-rise apartments with plenty of green space. Other developments will include wrap, typically above-ground parking structures surrounded by a mid-rise building, and horizontal, which may combine several types of multifamily housing and shared amenities. We’re seeing high demand for all these types of developments in our target markets.

Our Approach: Diverse Portfolio, Proven Partners

Our strategy with Growth Fund IV is to invest both as a limited partner and as a co-general partner in development opportunities across our target markets. Limited partnerships will make up 75% to 90% of invested capital, with the rest co-general partner positions. We already have about $350 million in seed investments earmarked for the Fund.

One of those deals is Preserve at Star Ranch, a horizontal rental community of 310 single-family homes on nearly 30 acres in Pflugerville, a growing suburb of Austin, Texas. The centrally located development offers great access to several employment nodes, downtown Austin and the international airport. Future residents will have high-quality retail a short drive away and live within a top-tier school district.

Origin is providing co-GP and joint-venture equity alongside an experienced sponsor, Guefen Development, to develop the Preserve. This is our third joint venture with Guefen, a proven partner with decades of experience, with three more deals expected to close within Growth Fund IV.

Four-Year Commitment with Optional Hold Period

Our new Fund will accept commitments until it raises $250 million or by March 2023. With its optional hold period, investors can either exit the Fund all at once or opt to remain in, receiving a tax-efficient income stream that allows them to stay diversified across a cash-flowing portfolio of multifamily projects.
This “build to core” option allows long-term investors to continue to protect their capital and reap yields by holding these assets over a longer term in order to generate cash flow protected by depreciation. For investors seeking to maximize IRR and exit the Fund at the end of the initial hold period, the Fund will sell and refinance assets to satisfy redemption requests. Rather than selling assets one at a time over a period of years, a single redemption means the investor can exit all assets at their fair market value at once.

Co-CEO Michael Episcope talks about Growth Fund IV’s unique structure.

An Investor-Focused Fee Structure

A traditional closed-end fund charges a committed capital fee from the start of the fund. Growth Fund IV’s fee structure is designed so that investors only pay when their capital is invested. This innovative structure means that we charge fees only when we find and acquire a deal. Money called is invested immediately, eliminating the potential issue of paying fees on committed capital that never gets invested.

Origin specializes in multifamily investment, and our goal is to help high-net-worth investors, family offices and registered investment advisors grow and preserve their wealth. With Growth Fund IV, we are building on our successful track record of offering the most innovative and strategic approaches to real estate investing.

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Posted By

Michael Episcope
Co-CEO

Michael Episcope formed Origin Investments in 2007, along with Co-CEO David Scherer. He has more than 25 years of investment and risk management experience.