October 5, 2016 | Redwood Expands Portfolio in Texas, Colorado | By: Kaitlyn Mitchell | Real Estate Finance & Investment
Apartment specialist Redwood Capital Group has closed on two acquisitions totaling more than $50m, adding a164-unit property in San Antonio, Texas, and a 220-unit garden-style apartment and townhome community in Thornton, Colo. “We acquire value-add opportunities for working-class people and improve units and amenities to make creative apartment complexes with a strong sense of community,” said David Carlson, co-founder.
It’s been an active 2016 for Redwood, which has five more deals totaling about $180m under contract that will add 1,436 units to its portfolio for a total of about $400-450m year-to-date. Three of these assets are in Raleigh, N.C., with one in Nashville and another in Chicago. “Nashville is one of the fastest-growing mid-tier markets in the country. An enormous number of Millennials are moving there, so it lends itself to a strong demand for apartments,” Carlson said.
The company’s Texas acquisition, Salado Crossing, is comprised of one- to three-bedroom apartments that are undergoing interior and exterior renovations. “We invest a significant amount so that it feels like a new home but also in amenities so that residents feel like they’re in a resort,” Carlson said. “We’re wholly focused on creating a sense of community and an environment of enhanced living versus living in a single-family home.”
Meanwhile, in Colorado, the company acquired the 1988 vintage Newport Village apartment complex. Redwood liked the asset for its proximity to downtown Denver and the city’s airport and is completing upgrades on parking lots, exterior lighting and landscaping, and unit interiors.
Many of Redwood’s tenants are Millennials or Baby Boomers, a focus that is partly driven by strong demographic trends. A recent report from the U.S. Census Bureau stated that for the first time in 100 years, more adults in the 18-24 cohort are living with their parents than with a partner. “As the economy continues to improve, increases in median household income mean that Millennials will move out from parents’ homes and into apartments,” said Carlson. “In general, Millennials love the flexibility of a 12-month lease, and not being tied down to a home with a 15- to 30-year mortgage.”
In the coming year, Redwood will strategically acquire apartments, as well as tactically dispose of certain assets it has owned. “We plan to deploy and acquire $500m of apartments next year,” Carlson said. “We evaluate our disposition pipeline on a quarterly basis throughout markets. There are abundant opportunities for value-add creation space and renter-by-need.” The company has sold about $100m of assets so far this year.
Redwood usually finances its activity via government-sponsored debt agencies such as Fannie Mae or Freddie Mac. The company will also use low-floating debt via insurance companies, depending on factors such as hold period. “The majority of our financing is done through debt agencies, generally anywhere between a 65% and 75% leverage,” Carlson added.