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has expanded its multifamily holdings in recent years through new development and acquisitions. That asset class is largely where
it sees a need for rescue capital
and a chance to draw on its own vertically integrated, in-house team to find investments and make them successful — all while building new long-term relationships.
“We can stand in the shoes of any aspect of
Ironically, the Denholtz Opportunity Fund II evolved from an earlier investment vehicle that the company launched in 2022, seeking to acquire warehouse and logistics properties in key U.S. markets.
That fund remains active, having closed deals in New Jersey and the Southeast, but Denholtz said it became clear that the investor landscape had changed.
“At the time, which was over a year ago, we thought that those limiteds were still out there,” Denholtz said in an interview late last year. “But the limited partners for a lot of
the asset types — the institutional partners — are not out there for
one reason or another. I think some have their own problems, others
are hesitant, others have different strategies, but primarily it’s as a result of interest rates being greater than or equal to cap rates, so it just makes buying of existing assets very, very difficult.”
Cap rates, short for capitalization rates, are a calculation of an owner’s rental income for one year divided by the purchase price.
Denholtz began to weigh another opportunity, namely that “you had a lot of owners out there who have properties that are good properties and, all of a sudden, they found themselves in trouble for a variety of reasons.” Some may have had debt coming due but would have
to refinance at a much higher rate, while others wanted to sell but had seen cap rates rise, “so they felt that most of their equity was wiped out and they wanted to hang on for another day.”
Others were simply grappling with cost overruns for their projects.
“Those are the three primary situations that we’ve been
coming across, so we felt that
we understood those owners’ problems, that we come at things from an owner’s point of view, that we can create very bespoke kind of solutions for people and that we’re not looking to steal properties from anybody,” Denholtz said. “And we didn’t have a rigid set of guidelines.”
The first investment under the
new-look venture was a multifamily project in North Carolina that was less than 50 percent complete
but was facing a budget shortfall, Denholtz said. The fund provided an infusion of $15 million ahead of all existing equity holders, enabling the Charlotte-area development to stay on track.
“That worked out well, so we started to gear the opportunity fund more toward those types of opportunities,” Denholtz said.
Denholtz then found a project in New Jersey that also seemed to fit the strategy, largely because its lender required “a substantial interest reserve” that the equity partners could not meet. But
the development had strong fundamentals, the firm said, providing an opportunity for the fund to “give a runway for the next 18 months, stabilize the project and give the equity a chance to try to recover their money.”
Notably, the fund got off the ground by supporting “people that we’ve dealt with for a long time,” Denholtz
of a business plan, whether that be development or lease-up. And that’s not unique to location — that’s just unique to process. Anybody who has started a project like that 12 to 24 months ago or in that range, they have a problem because interest rates have changed to an extent that no one contemplated.”
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Stephen Cassidy
the project,” said Stephen Cassidy, Denholtz’s president, later adding: “It’s really people in the middle of execution
PLEASE JOIN US
28th Annual Leadership Excellence Awards Dinner Celebrating 30 Years of Service in Real Estate Education
Thursday, May 30, 2024 | 5 P.M.
The Great Hall
Monmouth University, West Long Branch, NJ
LEADERSHIP EXCELLENCE AWARD
Donald M. Moliver, Ph.D., CRE, MAI
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SERVICE TO THE INDUSTRY AWARD
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