Where some see problems, others see prospects. Creekstone Cos., a multi-faceted real estate investment group in Houston, falls into the latter category. Creekstone is constructing, developing, acquiring and managing properties in more than 15 states.
In January, the company spun off a new division, Creekstone Partners, to acquire multifamily properties in the battered Sunbelt market. With more renters leveraging low interest rates to buy homes, high-tech and telecom job losses and the rampant overbuilding, some multifamily property owners are looking to exit the southern states.
Creekstone Partners plans to invest $400 to $500 million at cap rates between 7% and 8% to acquire up to 20 properties in southern states from the Carolinas through Denver this year. Real estate consultants are bullish on the new division, citing the management team's proven track record in identifying profitable acquisitions overlooked by other investors.
NREI spoke with Creekstone Partners' principal Marc Goldstein about the firm's investment in a southern U.S. multifamily market where low barriers to entry and overzealous lenders have led to overbuilding and how the firm's strategies differ from its competition.
NREI: What was the motivation for the creation of this special division?
Goldstein: The last couple of years have been very difficult in the multifamily sector. We believe there are several battered markets that present us with great opportunities to purchase product less expensively than we could build it. We are able to buy institutional Class-A assets at a 5% to 15% discount. We feel that right now is a better time to buy than to build.
NREI: How does your acquisition strategy differ from the competition?
Goldstein: We are buying in what are considered contrarian markets nationwide. We are focusing more on Charlotte and Raleigh, N.C., Atlanta, Austin, Phoenix and Denver because those markets have been the most bloodied in the last couple years. Those same markets had the most job and population growth in their respective regions going into the economic slowdown. That growth led to an overhang of construction. These markets have been oversupplied for the past few years and we feel those same markets will make the best comebacks in the soon-to-come economic upturn. More stable markets, such as Washington, D.C., don't present much upside to us.
NREI: What unique challenges are associated with the multifamily sector?
Goldstein: We have to figure out the bottom of these markets, and also when concessions are going to go away, if ever, when we are modeling the acquisitions. So, it's important for us not to lose sight that we need current income and return for our investors, as well.
NREI: What is the future outlook for the firm in regard to acquisitions?
Goldstein: Looking forward, we are trying to purchase another $350 to $400 million this year. Our equity has been well subscribed, and the debt seems plentiful. Our goal is to acquire 10,000 Class-A and Class-B units through this program in the next 36 months.
NREI: What factors might change your acquisition strategy?
Goldstein: The only thing that would affect our strategy is the cost of debt. If cap rates don't rise as fast as interest rates, then that could slow down our acquisition activity. I don't have a crystal ball, but I believe interest rates are going up. But we have a goal to reach and we are doing everything we can to get there.