CRE investors provide external assistance for the acquisition
Real estate investors often complain that they have to go through hundreds of offers to find a good one. Even then, they are usually in competition with dozens of other investors, reducing their chances of winning the offer. And if (or when) they lose, they are left with disappointment after wasting thousands of hours in sourcing and underwriting.
This is often an inefficient and inefficient process, which has remained largely unchanged for years. Today, many frustrated investors are turning to a new business concept: acquisitions as a service. They are increasing their internal acquisition efforts by working with third-party companies that leverage data to help find deals and move faster than the competition to deploy capital.
Consider Blackfin Real Estate Investors: The Arlington, Va.-Based multi-family investor is working with Archer, a data-driven investment firm to “improve what Blackfin’s internal team is already doing,” according to Doug Root, co-founder and Managing Director of Blackfin. .
“The whole real estate industry is a bit old-fashioned, but Archer is doing something new and unique that gives us another opportunity to find investment opportunities,” Root said. “We can only talk to so many salespeople and make so many calls on our own. “
So far, Blackfin has managed to win contracts without any outside help. Since the start of the year, the company has completed 13 deals, making it one of the most active buyers in the market. It owns and operates a portfolio of 33 apartment buildings totaling over 7,400 units.
Despite Blackfin’s history of winning contracts, the management of the company is always looking for innovative ways to stand out from the competition. Root says, “Archer, by leveraging its technology, helps us identify properties that meet our investment criteria and target potential sellers.
Establish a competitive advantage
Today, real estate investors are under tremendous pressure to deploy capital, especially those who have raised money through funds. The pressure is worse for multi-family investors, given the amount of capital that has poured into the industry as investors swap office and retail assets.
“In real estate, it seems that capital is often not the problem, but finding an offer has become increasingly difficult,” says Thomas Foley, co-founder and CEO of Archer. “Everyone is looking for an advantage. Data-driven transaction research and underwriting allows our clients to gain an unfair advantage over their peers and even outperform mega-funds with their own internal data teams.
So far this year, Archer has analyzed 32 markets for its clients and identified over 200 properties for acquisition. During the third quarter of 20201, he facilitated off-market transactions totaling $ 252 million. According to Foley, Archer can identify more than 10 off-market trading opportunities in less than two weeks and uses a compensation model that real estate professionals are used to working with: pay for performance.
Before Foley started Archer, he was an investment broker at HFF (now JLL) in the Bay Area, and during his time with the company he witnessed the struggle real estate investors face when ‘they are trying to deploy capital. The crux of the matter: quality, actionable information.
“It’s about giving them the information they need to take action, being smarter about where they spend their time, and therefore having more success in deploying capital and making acquisitions, ”Foley explains of Archer’s investor clients. “If they don’t have to go through all the minutiae, they can really do whatever they want to do with their time, like win and close deals.”
Foley isn’t the only one who has noticed how archaic and time-consuming the acquisition process can be. Travis Farese, founder and CEO of Austin-based Offerd, achieved the same when he made his first purchase as a multi-family investor and every transaction since then.
“Every research involved starting from scratch,” says Farese. “It has always been difficult to find properties that meet my investment criteria, and I had no idea how to find properties that might be suitable but were not listed.”
These difficulties prompted Farese to launch Offerd, which takes care of the entire acquisition process for investment firms, whether or not they have an in-house acquisition team. Over the past few months, the company has facilitated acquisitions of over $ 200 million and is on track to surpass $ 1 billion in the next 12 months.
Currently, Offerd is working with Cross Mountain Capital to expand its portfolio in the Mountain West region. Prior to signing with Offerd in 2020, the New York-based multi-family investor completed all of the acquisitions in-house. He had around $ 50 million in assets under management, mostly smaller properties in the Upper Northeast.
According to Farese, Offerd helped Cross Mountain Capital find, assess and close a deal within 60 days of launching its research efforts. The off-market deal was closed 90 days later, prompting Cross Mountain Capital to renew its deal with Offerd.
Take a proactive approach to acquisitions
When Archer speaks to potential clients, Foley says three selling points resonate the most with them: finding off-market deals, automated underwriting, and re-entering the market through the location recommendation engine of the company. ‘business.
Archer’s ability to close off-market deals is one of the main reasons Cameron Pringle decided to work with the company. As the founder and managing partner of San Diego-based multi-family investment firm Manor Development, Pringle was looking for ways to boost his company’s acquisition efforts and grow his existing portfolio of eight communities totaling 260 units in and around. from Southern California.
“Off-market transactions are the best opportunity to get a decent return, but finding them takes a ruthless workforce, and we just don’t have the in-house workforce to do it,” says Pringle.
Pringle, who has a background in technology and spent nearly six years at Tesla Engineering Battery, was immediately intrigued when he heard about Archer’s data-driven approach to finding contracts. The company hired a data scientist with a background in hedge funds to guide its data analysis efforts.
Archer’s proprietary technology platform, AIM, aggregates data from traditional and non-traditional sources and combines it with local market knowledge. By monitoring millions of data points, including cash flow and occupancy rates, AIM can assign properties with a “seller propensity score,” a number that essentially rates the likelihood of a homeowner being willing. for sale as part of an off-market transaction.
“Being able to identify properties that match our value-added strategy and getting a sense of which owners are open for sale saves us time and produces better results for us,” says Pringle. “Honestly, Archer’s technology is really, really bad.”
Experts estimate that off-market transactions account for around 50% of the overall volume of multi-family acquisitions, if not more. Blackfin epitomizes this statistic: The company’s transaction flow in 2020 was over 80% off-market, according to Root.
Working with companies like Archer and Offerd represents a more proactive approach to acquisitions. Investors don’t wait for deals to come to them. Rather, they look for properties that meet their investment criteria.
Benefit from data-driven research
The commercial real estate industry, especially the multi-family sector, does not suffer from a lack of data. However, he suffers from knowing how to make the most of it when it comes to acquisitions.
“The data is available, but it’s like concrete and other raw materials – it’s still up to individual companies to implement it,” says Farese.
Offers leads on over 90,000 non-market multi-family properties across the country. Its predictive analytics platform leverages more than 10,000 data points at the national, market, submarket and ownership levels to identify assets that meet specific acquisition criteria.
“Without this information, you are often a passive investor waiting for the right opportunities to arise,” says Farese. “With this huge knowledge base, you are an active investor who develops an investment strategy with specific parameters, finds properties that meet those criteria and conducts direct transactions. It is this data around each property that offers a real competitive advantage.
It was this competitive edge that Pringle was looking for when he connected with Archer. First, he asked the company to identify investment opportunities in San Diego, where Manor is based. The results surprised him, however: Archer discovered new neighborhoods with potential and highlighted opportunities in zip codes he was unfamiliar with, despite living nearby.
Based on the success of Archer’s early research results, Pringle plans to work with the company to identify similar investment opportunities – smaller, value-added apartment communities – in markets outside of San Diego.
Archer’s recommendation engine will play an important role in achieving Manor’s strategic goals. Developed by Archer’s team of data scientists, the recommendation engine takes a client’s investment strategy in a market in which they are already invested and identifies other markets that also fit into that strategy. If this sounds like the list of shows suggested by Netflix, that’s because it is. “Archer can say to a client, ‘If you like this, you’re going to love this…’,” said Foley.
With Archer’s help, Pringle expects Manor Development to be able to significantly accelerate its acquisition activity. “It’s new, and it seems real estate is holding up to anything new, especially technology, but before hammers people used stones. Once investors realize they have a hammer, they will be dying to use it.