The Ackman-Ziff Real Estate Group LLC has graciously provided us with access to its most recent quarterly surveys of terms and conditions in the private equity and debt commercial and multifamily real estate capital markets. Following is the equity survey.

Joint Venture Equity Market Survey – The Ackman-Ziff Real Estate Group LLC

Investor Appetite and Sentiment:        

  • Ample capital and eager to invest / focused on value-add and opportunistic distress, restructure/recapitalization and off-market opportunities
  • Highly selective seeking favorable risk-adjusted returns with discount to intrinsic value
  • Flight to quality (location, asset, sponsorship) still a strong investment theme
  • Transaction volume increasing as availability of viable opportunities meaningfully increasing
  • Multifamily, hotel and grocery-anchored retail are favored asset classes
  • Capital available for development of multifamily (in strong locations) and retail (with significant pre-leasing)
  • Prefer to get involved in restructure / recapitalizations after initial discussion and before final deal negotiated with lender/special servicer

Investor Total Return Target:

  • Average total return targets (lower for strongest markets):
    • Value-Add: 15-17% IRR/Equity Multiple Focused
    • Opportunistic: 18%+ IRR/Equity Multiple Focused
    • Capital structuring creativity utilized to solve risk and return requirements of investor & sponsor
    • 10-15% sponsor co-investment capital required/meaningful dollar amount to sponsor in aligning partnership’s interests & goals
    • Promote structures sized on a deal-by-deal basis/becoming more favorable to sponsors (particularly through competition)
    • Cash-on-Cash Yield more important component of total return

    Investor Underwriting Approach:

    • Continued conservative approach for base case scenario/assumptions must be empirically supportable & historically relevant
    • Some investors attributing higher probability to upside scenario
    • In-Place durable cash flow valued
    • Value creation through maximization of NOI (versus reliance on residual value)
    • Some value attributed to vacancy
    • Capitalization rates mean reverting upward within the mid- to long-term time horizon

    Equity Capital Availability:

    • Trending to higher availability of equity capital including foreign capital aggressively seeking  U.S. property investments
    • Fund raising for new funds remains challenging but superior investment advisors achieving success
    • Fund legacy issues and LP liquidity issues being resolved/industry consolidation occurring