Multifamily Maintains Momentum as Carmel Closes $1B Fund

Concerns about the multifamily residential sector’s ongoing strength failed to dampen a recent fundraising by sector specialist Carmel Partners. The firm just closed an oversubscribed fifth – and largest – multifamily fund in nine months, raising more than $1B from new and existing fund investors. The firm’s previous four funds took around one year apiece to raise and all were oversubscribed.

The San Francisco-based firm’s head of investor relations and managing partner, David “Mac” McWhorter, says the Carmel Partners Investment Fund V opened in October with an initial target of $850M.

After the target was reached at the end of the first quarter, Carmel’s efforts to diversify its investor base paid off, with the fund finally closing oversubscribed, at its hard cap of $1.02B, with about 50 equity commitments from domestic investors. Many of the new investors were corporate defined benefit plans that invested alongside some of Carmel’s roster of foundations, endowments, and family offices. While some investors are concerned about the outlook for U.S. multifamily residential, McWhorter says Carmel’s approach as a specialist in the sector has played to its advantage.

“Generally speaking investors are concerned asset pricing has become rich, and there are not as many opportunities that a lot of people could take advantage of,” he says, noting that many in the sector were already at or above their allocation to multifamily assets.

Investors are cautious about the sector, McWhorter says, and many got themselves properly overexposed to multifamily at the right time.

“Now we are not seeing as much of an appetite to go overweight in multifamily,” he says. However, investors remain attracted to Carmel’s strategy of creating core multifamily assets at a discount to core asset prices, and the firm’s vertical integration, which allows it to avoid the costs of a JV operator or partner, according to McWhorter.

Carmel is finalizing investments for the $820M Carmel Investment Partners Fund IV, before commencing investing in a pipeline of assets on behalf of Fund V. In a statement, Carmel founder and chief executive Ron Zeff predicted that the fifth fundwould have a high percentage of ground-up development projects, given that the fund’s vertical integration enabled it “to mitigate the risks in execution and construction.”

Carmel will continue to focus on markets it already has a presence in, looking at development, renovation and debt investment opportunities, McWhorter says.

“Our philosophy has always been to invest in markets with high barriers to entry, where supply constraints and high median home prices,” McWhorter tells PrivcapRE, naming the San Francisco Bay Area, Southern California, Seattle, New York, Washington D.C., Honolulu, and Denver as the firm’s target markets.