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CAPFUNDR, a New York-based fund management platform, has launched a fund with a rare focus: CAPFUNDR REIT Value Fund I will invest in secondary interests in non-traded real estate investment trusts. The fund, which will be capped at $5m, is also the first leg in a broader expansion plan.
Non-traded REITs, which have been around for more than 15 years, have traditionally been illiquid for their investor base of individual buyers. “A lot of those early non-traded REITs should have been liquidated by now, but they haven’t, partly because of declining [net asset value] due to the heavy fee loads and the market crash in 2008,” said Mitch Wasterlain, founder, co-CEO, and CIO. Wasterlain’s experience included a long tenure as the cio of NorthStar Realty Finance, a listed public REIT with a $20bn portfolio of diversified investments.
Non-traded REITs, which are publicly registered, are not traded on exchanges and investors in the vehicles are typically unable to trade their shares or redeem them early. “There is a limited secondary market – there are some brokers who trade REITs not [listed] on an exchange and some auction sites where you can sell your shares, but the market is very inefficient with very few buyers [partly because] non-traded REITs have such a bad reputation that no one wants to
get involved,” Wasterlain said. “It is very difficult [for retail investors] to sort through and understand the structure of these companies [non-traded REITs].”
CAPFUNDR aims to sort through and evaluate non-traded REITs to come up with a target list of companies that are liquidating or repositioning themselves for a public listing. On average, the team have been able to acquire shares at a 20-30% discount to NAV. In addition to dividend yields of approximately 4-5%, CAPFUNDR anticipates liquidity events such as restructurings or sales that will help the fund to realize a projected internal rate of return of 12% to 15%.
The firm’s investment plans are much broader than the non-traded REIT space. Indeed, CAPFUNDR will start raising a multifamily fund this month. The $50m fund targets multifamily value-add properties in Midwestern cities. By next year, the team hope to assemble a dozen different funds, including net lease, office, retail and real estate debt. “If they [investors] want to diversity their portfolio and reduce its correlation to the stock market, they should invest in funds,” Wasterlain said.
Similar to most crowdfunding platforms, CAPFUNDR also uses Regulation D, or the Title II Crowdfunding Rule, to raise capital. CAPFUNDR, however, operates through a fund model, enabling institutional and accredited investors to build their own portfolio of funds. “Each fund is diversified and professionally managed. Investors can come to CAPFUNDR and invest in a diversified portfolio with smaller niche strategies that generate attractive yield,” said Edward Yu, founder, co-CEO & CFO. Yu previously served senior positions at AEW Capital, CBRE Investors, Starwood Capital Group and Prudential Real Estate Investors.
The firm operates on a management fee model, charging 150 basis points on AUM. “We leverage technology to be more cost efficient. We have less overheads and we are nimble,” Yu said. “Our business model allows us to [pair up] with the best-in-class operating partners in each class of real estate and create private equity real estate funds without the double fees and double promotes charged by the large capital allocator funds,” he added. Excluding the non-traded REIT fund, the second fund and majority of upcoming funds will be joint venture with a real estate operator with operating expertise in a specific market or asset type.
Original Author: Sherry Hsieh