While The Bainbridge Cos. has been around since 1997 and developed nearly 43,000 apartment homes, the firm had never really gotten into the programmatic fundraising side of the business.
However, that changed in March when the Wellington, Florida-based apartment owner, manager and developer held a first closing of approximately $150 million in commitments for the Bainbridge Multifamily Acquisition Fund I.
With a target raise of $250 million in commitments, Bainbridge plans to acquire 1990s and newer apartments at discounts to replacement cost in Sun Belt and mid-Atlantic markets.
“When you are a vertically integrated operator like we are, a fund gives you the ability to move very quickly to find opportunities,” Bainbridge Executive Vice President and Chief Legal Officer Brian Doppelt told Multifamily Dive.
In this environment, where deals are going “quietly and quickly” and in many cases off-market, the fund allows Bainbridge to be nimble without going to a joint venture partner for approval on acquisitions, according to Doppelt. “We want to be well-positioned to pounce,” he said.
With the new fund, Bainbridge is pursuing stabilized existing apartment communities, value-add opportunities and distressed real estate acquisitions. However, Doppelt expects to see the opportunity to acquire properties on the newer end of the spectrum.
“I think 2010s and newer is really what we're aiming for because we do think there's some really good upside potential there and low downside risk,” Doppelt said. “Obviously, the older you get, the more you have to do to the property.”
Here, Doppelt talks with Multifamily Dive about the new fund’s parameters, the sales market and the potential for distress.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: How did you prepare for buying opportunities today by selling properties a couple of years ago?
BRIAN DOPPELT: We felt that values hit their peak during 2021 and 2022 and that once values declined, we would be able to buy attractive multifamily in our markets.
We also noticed that there was a lot of supply that had been delivered. We recognized the effect that would have on new deals leasing into an environment with a lot more competition and that the NOI assumptions would, therefore, not reflect reality.
How did you determine the focus of the fund?
We wanted to be strategic when we went out with this fund. We have a very defined box as to what the fund is investing in. So it's a very specific thesis of 1990s or newer multifamily in the markets we've historically been in.
We can deliver opportunistic, high-value-add returns to investors by buying at a good basis with some good upside when we can prove that a market has hit peak supply and will have very strong absorption and growth trends continuing forward.
How do you separate what you’re buying with the fund from what you may purchase in joint ventures?
Outside of the fund, there is a bright line. That helps our fund investors and our joint venture partners know what's going on and have assurances that we're not going to cherry-pick what's outside that box, which is obviously older — 1960s, 1970s, 1980s — product with very, very deep value-add.
So we're not doing very significant renovation work in this fund. It's a light value-add. The work has already been done since we're buying newer properties. If it's a 1980s property that we’re putting $30,000 a unit into, we can clearly do it outside the fund.
Do you feel like the sales market is picking up overall?
It really depends on the capital structure and what they're looking for. There has been a lot of activity on recapitalizations for sure. But outright sales, I think there's still a little bit of a challenge of making the numbers work. When you can't make the numbers work, it doesn't makes sense to go in and buy it.
Are you seeing a lot of distress in the market?
Sellers, where they can get their equity out, are likely to sell. If a seller is on a guarantee, for example, and has some repayment obligations, they're likely to sell. Where you start dipping below the debt, that becomes more tricky. I think we'll see more of that as the year goes on.
We're still in the early innings of this cycle. The lenders have been willing to extend, and the bridge lenders have been out there providing bridge loans. The groups we're really targeting are less liquid sponsors — sponsors that were self-funded or syndicated to more retail-type investors where they are getting capital-called to death. At a certain point, those sponsors can no longer bridge it out.
Bainbridge has a strong development history. How are you looking at new construction versus acquisitions right now?
We've always been nimble and flexing back between acquisitions and development, as it made sense. During the time cap rates were compressing and rents were going up, we built a tremendous number of deals. We sold them very profitably. When we saw the need to start acquiring, we pivoted.
We're starting to pivot back a little bit toward development. We’re cautiously optimistic that we’ll have a good amount of starts that will happen later this year and early next year. We think it will be a good time to develop, given where peak supply is occurring,
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