Bain, Magnolia target fixer-uppers with $900M joint venture

Bain Capital's Kavindi Wickremage and Magnolia Capital's Maxwell Peek (Photos via Bain; Magnolia)

Bain Capital’s Kavindi Wickremage and Magnolia Capital’s Maxwell Peek (Photos via Bain; Magnolia)

Bain Capital Real Estate and Magnolia Capital are teaming up to acquire and renovate multifamily assets.

The joint venture will deploy $900 million on behalf of investors to purchase garden-style properties built between 1975 and 2000 with a middle-income renter profile, in what the companies deem well-located areas — i.e. suburban areas outside of Gateway cities. It will then pour money into fixing up those properties.

Middle-income tenants were largely buffered from the employment losses that low-income renters suffered due to the pandemic, but still fit into a renter-by-necessity profile, making the sector a safer bet in an economic downturn.

“Our partnership with Magnolia Capital is rooted in our thesis that there is a long-term need for middle-income housing, particularly in growing U.S. markets where housing affordability continues to worsen,” said Kavindi Wickremage, managing director at Bain.

The companies expect the joint venture to bring in returns in the low to mid teens for its investors. That’s typical of value-add strategies, where a property manager buys an asset and makes improvements or repairs in order to increase cash flow. For Bain and Magnolia, improvements could include interior renovations, along with exterior and amenity space upgrades.

Magnolia, which is based in Chicago, owns and manages 6,600 properties, most of which are concentrated in the Sunbelt region, including holdings in Dallas, Atlanta, and Raleigh and Charlotte in North Carolina. The firm has $2 billion in assets under management.

Bain Capital Real Estate is the real estate arm of Bain Capital, which was co-founded by U.S. Senator (and former Republican presidential candidate) Mitt Romney. Since 2018, it has invested over $4 billion across multiple sectors. In 2019 it formed a joint venture with SKW Funding to target $500 million of distressed real estate debt as part of its $3 billion debt fund.

At the time, SKW Funding principal Ayush Kapahi said that regulatory changes to the multifamily sector could lead to distress.

But any distress is still rippling under the surface. Overall, the sector has become a safe-haven investment during the pandemic, despite initial concern over rent collections. Investors including Kushner Companies are looking to double down on garden-style apartments in the Sunbelt region.

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