INVESTMENT STRATEGY – THE AMERICAS

U.S. Investments

Since 1995, Paladin Realty has acquired nearly 200 properties throughout the United States totaling over $2 billion of total cost. These investments have included rental apartments, for-sale housing, lodging, office, industrial, and land developments.

Paladin Realty may invest directly as an operator or by forming joint ventures and co-sponsorships with local operators, selecting best in class partners and attractive investments. The firm has historically targeted market segments and strategies that are typically too small or otherwise challenging for larger institutional investors to access directly.

Value-Added Apartments

Since its inception, Paladin Realty has been an active investor-operator focused on renovating and repositioning older, under-performing Class B/C rental apartment properties throughout the U.S.  As of December 2021, Paladin had acquired 87 apartment properties totaling over 15,000 units and nearly $750 million of total cost, generating an average 26% IRR at the project-level. Currently, the firm is focused primarily on opportunities in Southern California. 

Southern California Focus

About half of Paladin Realty’s apartment investments to date comprise Class B/C workforce and middle-class rental housing located in Southern California, a large and chronically supply constrained market dominated by smaller and less sophisticated “mom and pop” owner-operators, where Paladin Realty’s institutional approach and expertise can enhance value and create sustainable cash flow and appreciation for investors.  Paladin Realty’s Southern California investments have historically been among its best performing assets.

Simply put, Paladin Realty acquires fatigued, under-performing properties with current rents well below market, improves the properties with contemporary exterior and interior unit upgrades, applies professional management to optimize operations, and sells or refinances after completion of renovations to harvest the enhanced value resulting from higher stabilized net operating income.  The firm targets annualized returns to investors in the mid-teens over a 3-5 year holding period, using conservative leverage.

Paladin Realty believes that Southern California offers several distinct and compelling benefits for this strategy compared to other U.S. markets, including:

Certain of Paladin’s Southern California apartment properties are managed through an affiliate, Paladin Pappas Apartment Investments LLC (PPAI), in partnership with Pappas Group Inc.

For More Information

If you are an accredited investor and would like to learn more about Paladin Realty’s U.S. investment strategies, please click here.

U.S Acquisition Criteria

Paladin Realty evaluates investment opportunities in apartment properties across the U.S., while being primarily focused on Southern California. The firm targets older, under-performing Class B and C apartment properties offering superior value-added potential. “First look”, off-market and poorly managed opportunities are preferred. Paladin Realty has earned a reputation for integrity and as a strong, reliable buyer that protects its broker relationships.

Markets: Greater Los Angeles, including periphery counties
Property Profile:

▪ Class B/C apartments (20-50 units or larger)
▪ Older vintage (1950’s to 1990’s)
▪ Well-located in safe, desirable working- and middle-class neighborhoods
▪ Correctable deferred maintenance and operating deficiencies

Loss to Lease: 20-30% or more
Market Cap Rate: 5.5-7.0% post renovation (at least 100-150 bp above likely exit cap rate)
Rent Control: AB1482 strongly preferred
Deal Size: Typically $7-30 million; will consider compelling out-of-the-box opportunities

Acquisition Contacts

Fred Gortner Evan Pickering, CFA
Co-Founder & Head of U.S. Strategies Vice President
USA +310-614-8264 USA +206-390-7523
fgortner@paladinrp.com epickering@paladinrp.com

Latin America Investments

Paladin Realty has been continuously investing throughout Latin America since 1998 through a series of comingled institutional funds, as well as locally domiciled investment vehicles. The firm generally follows an opportunistic approach in selecting the appropriate product mix and geographic diversification for each investment fund. Weightings vary from fund to fund, depending upon market conditions and other factors, However, the overriding objective is to achieve attractive risk-adjusted returns by developing diversified portfolios within the region. Paladin Realty has four regional offices located in Brazil, Mexico, Colombia and Costa Rica.

To date, Paladin Realty has invested in over 200 properties in Latin America, totaling more than $4 billion of total cost, across a range of product types in seven countries, including for-sale residential, rental apartments, student housing, senior living, office, lodging and land developments.

The firm’s key investment themes in Latin America are currently:

Residential investments

Paladin Realty has been one of the largest developers of for-sale workforce (low- and middle-income) housing, rental apartments, student housing and senior housing through Latin America, developing over 38,000 housing units to date across the region. Residential investments benefit from the region’s strong demand for housing, fueled by steady demographic tailwinds, huge regional housing deficits and household formation that greatly exceeds new supply. Such investments also tend to provide attractive project-level economics (targeting opportunistic returns with low debt), greater portfolio diversification due to their relatively small equity requirements, and attractive risk mitigation features (e.g., shorter investment durations, significant pre-sales, inflation-indexed sales revenues).

Zero-Carbon Affordable Housing Developments

Paladin Realty has been developing affordable housing across Latin America for over 20 years and has been doing so with certified sustainability over the past decade utilizing the EDGE (“Excellence in Design for Greater Efficiencies”) system developed by the International Finance Corporation (IFC) to save energy, water, and embodied energy in materials. Paladin Realty has been honored as an IFC EDGE Champion by the IFC for its commitment to the program, having certified 18 projects to date totaling over 5,800 units in Brazil, Colombia, Mexico, Peru, and Costa Rica. Most notably, Paladin Realty certified the first “IFC EDGE Zero Carbon” residential project in the world at its 1,600-unit Villas del Fresno affordable housing development outside of Mexico City. Paladin Realty is committed to replicating the performance of this project across the region, continuing to push the boundaries of what is possible in sustainable affordable housing.

Opportunistic commercial investments

Paladin Realty has invested in a range of commercial strategies throughout Latin America, including acquiring existing institutional-quality assets at discounts to historical values, select distress opportunities, shorter duration value-added renovations, and select new developments to serve the region’s growing economies. The firm also invests in institutional-quality commercial properties and select build-to-hold opportunities through separate accounts and other types of investment vehicles, aiming to generate long-term income and appreciation. Paladin Realty is a pioneer in the development of purpose-built rental apartment properties in Brazil, with a platform of five projects in various stages of development.

Conservative Project Capitalization

Low debt has been a key component of Paladin Realty’s Latin America strategy for more than 20 years. Peak levels of debt financing for individual residential projects typically total 30-40% of total cost, resulting in average portfolio leverage of only 10-20% at any point in time. Commercial investments are often made on an all-equity basis, although moderate leverage may be obtained in some markets.

Control

Control over the real estate and project-level business plans has always been a central feature of Paladin’s hybrid allocator/operator investment approach. The firm’s investments are typically structured through programmatic joint ventures with seasoned local operating partners, most of which pursue multiple projects within a focused business plan over the span of five to six years. The firm has an established network of local operating partners in the region, having done business with dozens of companies over the past two decades. In select instances, Paladin Realty co-develops projects alongside a local operating partner, or may manage direct investments without a local operating partner, utilizing the deep real estate development and operating experience of its local professionals in the firm’s four regional offices.