TruAmerica is making strategic moves to diversify its investment portfolio by stepping into structured finance, highlighted by a significant $27 million preferred equity investment in a new 251-unit apartment community currently under development in San Carlos, California. This recent announcement came through a release shared with Multifamily Dive on August 10.
The company, based in Los Angeles and one of the top 50 apartment owners, made this investment following the appointment of Ash Baraghoush as senior managing director to spearhead their structured finance efforts. In the time since his onboarding, TruAmerica has been developing partnerships with institutional investors to support this new direction, culminating in the San Carlos investment, which stands as its first structured finance venture.
"This new strategy integrates well with our existing acquisition, development, and affordable housing initiatives," Baraghoush told Multifamily Dive. With plans to build a private credit portfolio totaling approximately $500 million within the next few years, TruAmerica is poised to expand its influence in this segment of the market.
Baraghoush, alongside TruAmerica President and CEO Bob Hart, along with Chief Investment Officer Noah Hochman, aims to pivot the firm from a traditional owner-operator model to a broader residential investment management company. “This shift has led to the creation of multiple business verticals,” Baraghoush explained.
Over the last year, the structured finance team has focused on building relationships with investors amid challenging market conditions. Despite this, there’s a clear readiness to deploy capital in the form of preferred equity, mezzanine debt, and senior financing tailored for apartment developers and owners.
"We've been actively cultivating and expanding our pipeline since Q1 of this year, and it remains quite strong," noted Baraghoush, indicating a positive outlook for structured finance opportunities.
San Carlos Development Details
The planned six-story complex, facilitated by TruAmerica’s financial commitment, will feature 213 market-rate units alongside 38 affordable housing units, contributing to the San Francisco metro area's housing stock.
Baraghoush emphasized the caliber of the developers involved, stating, “The relationships we have with our partners are solid. They’re a top-tier developer in the Bay Area." This partnership became critical when SummerHill Apartment Communities sought to pivot from traditional equity raising to preferred equity options.
The investment is backed by significant sponsorship and an advantageous location, with Baraghoush asserting that it checks all the right boxes for TruAmerica’s risk-adjusted investment strategy. "This deal combines superb sponsorship, an attractive location, and an excellent risk-adjusted return profile," he stated.
Given that the San Carlos area has been experiencing remarkable growth with rents rising at double-digit percentages annually, coupled with occupancy rates exceeding 97%, the deal indeed reflects a favorable investment climate.
"We won this deal by enhancing leverage in the capital stack, as we have confidence in the sponsor, the locale, and the storyline in the Bay Area," Baraghoush added.
A Growing Trend in Private Credit
TruAmerica is now among a growing number of prominent ownership groups providing capital for development projects led by other firms, a trend that's notably attracting smaller entities such as Forum Investment Group.
Baraghoush pointed out that owner-operators are increasingly keen on accessing diverse investment opportunities, viewing them as valuable for achieving strong risk-adjusted returns for their investors in the current marketplace. Offering preferred equity not only aids in enhancing lending relationships but also fortifies ties with investors.
In situations where projects face challenges, having capital in play can allow owner-operators to step in to stabilize the project before it necessitates lender intervention.
Hochman highlighted this dynamic, saying, "This approach introduces an additional level of operational expertise, so lenders don’t end up having to reclaim assets themselves."
Moreover, publicly traded REITs like Essex Property Trust and UDR have also been active in providing capital for joint development ventures, acknowledging the complexities involved, whereby investments sometimes require these firms to regain control over mismanaged projects.
For example, earlier in 2024, UDR took ownership of a 173-unit property in Oakland that had been developed by Mill Creek Residential, while Essex assumed equity interests in another Sunnyvale project.
However, Baraghoush emphasized that TruAmerica's goal remains to nurture partnerships rather than take over properties. “I want to avoid reporting back to our investors that we had to remove a partner and bring an asset into our portfolio. The relationships formed through this vertical are far more valuable than a few unsatisfactory deals,” he stated.
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