Value-Added Investments in U.S. Apartments
We renovate and reposition older “Class B” and “Class C” rental apartment properties throughout the U.S. that are under-performing their market potential. Our track record since 1995 is extensive:
Southern California Focus
Half of our U.S. apartment investments to date have been in Southern California, a large and chronically supply-constrained market dominated by smaller, less sophisticated “mom and pop” owners, where our institutional expertise can unlock value and generate attractive risk-adjusted returns for our investors.
Our SoCal investments have been among our best performing and is the current focus of our investment strategy.
Simply put, we (1) acquire tired, poorly performing apartment buildings with current rents 20-30% below market, (2) improve the assets with contemporary exterior and interior unit upgrades, (3) apply professional management to optimize operations and increase net operating income (NOI), and (4) sell or refinance after renovations are complete to harvest the enhanced value.
We target low-to mid-teen IRRs for our investors over 3-5 year holds with conservative leverage.
Attractive Demand-Supply Fundamentals
- Chronic region-wide shortage of affordable housing due to large barriers to new supply drive demand
- Less institutional competition due to predominance of smaller assets (20-80 units)
- Abundant value-added opportunities due to large fragmented market dominated by unsophisticated “mom and pop” owners
- Complex rent control regulations create opportunities for experienced investors like Paladin Realty
- Higher interest rates put pressure on owners with variable rate debt, creating attractive buying opportunities
- Attractive upside potential – low cap rate markets such as Southern California disproportionately reward value-added business plans that increase cash flow and provide cushion should cap rates increase beyond initial underwriting expectations
Strong Downside Protection
- Resilient renter demand for Class B/C assets, including strong performance during recessions
- Pricing power from buying assets with current rents 20-30% below market
- Substantial discount to replacement cost
- Conservative debt capitalization
- Short term leases provide the ability to raise rents to mitigate the effects of inflation
- Diversified portfolio decreases risk inherent in single asset investments
“Rising cap rates will create excellent buying opportunities in 2023.”
Co-Founder & COO