Commercial Real Estate Direct Staff Report
Base Equities has raised $10 million of a targeted $50 million for its first investment fund, which is being used to make preferred-equity investments in apartment and industrial properties.
The Los Angeles investment manager was founded last year by Eli Moghavem, a former principal at LaSalle Investment Management’s LaSalle Debt Investors, and Michael Bastan, who previously had founded Brookside Equities, also of Los Angeles, that invested in apartment properties.
The fund, Base Preferred Equity Fund I, will make investments of $1 million to $5 million in properties in the southeastern and southwestern United States with total capitalizations of $5 million to $30 million each. Roughly 75 percent of its capital will be invested in multifamily properties, with the remainder earmarked for industrial properties.
Markets it’s targeting have strong population and economic growth prospects. Those include Austin, Texas; Charlotte and Raleigh, N.C.; Dallas; Phoenix; and Tampa, Fla. It is targeting a 14 percent return to its investors, which include high net-worth individuals and family offices.
The fund already has made three investments totaling $8 million in hotel-to-apartment conversions in Arizona. It plans on making a total of 15 to 20 deals by the third quarter of next year and then launching a follow-up fund. Bastan noted that investors in small- to medium-sized apartment properties typically capitalize their investments on a deal-by-deal basis, spending a lot of time raising capital, particularly common equity. The uncertainty of raising that equity often can put a deal at risk.
Sponsors could minimize their common equity needs by bringing in Base as a preferred-equity investor, which provides “more favorable terms than they would have with common equity,” explained Bastan. “It really takes out a lot of the risk and uncertainty for them.” Base’s investments will have terms of two to five years, with an average of three years. The aim is to have its investments be coterminous with any mortgage financing.
So, when a property is recapitalized or sold, the preferred equity can be retired. Sponsors will face a 1 percent fee for Base’s preferred equity, which would receive an 8 percent to 15 percent preferred return. Base also aims to structure its investments with a profit split. The fund’s first three investments were with the same sponsor in separate deals. It made a $2.5 million investment in a 96-unit project in Phoenix, a $2.5 million investment in a 113-unit project in Tempe, Ariz., and a $3 million investment in a 141-unit project in Phoenix. “We’re focused on the small-balance, preferred-equity market because it’s so underserved,” Moghavem said. “There aren’t a lot of reliable equity partners and there are a lot of sponsors that are in need of this type of capital that can be flexible and reliable and can provide certainty of closing.”
