There is nothing unusual when a private equity player decides to target commercial real estate with a new fund. In this case, the PE company is also a developer.
Al. Neyer, a 125-year-old commercial real estate development and design-build firm with offices in Cincinnati, Ohio; Pittsburgh, PA; Raleigh, NC and Franklin, TN, just closed their first real estate investment fund.
The company, with $ 808.8 in construction signatures since 2018 and 22 projects in 2020 alone, has raised $ 110 million from 105 investors. It plans to finance $ 300 million in Class A industrial projects. Neyer plans to use debt with equity, according to a report by Cincinnati Business Courier.
“So far, Al. Neyer has been raising equity on a project-by-project basis,” the company told GlobeSt.com. “Over the past few years, the company has experienced explosive growth, becoming 100% employee-owned in 2014 and expanding to Nashville in 2015 and Raleigh in 2019.”
The company has a portfolio of 20 projects that could represent up to 12 million square feet of industrial space, given the demand for e-commerce and manufacturing. Neyer plans to “deploy all equity within 12 to 18 months and launch additional funds once all equity is deployed.”
Neyer is not the only real estate with a booming private equity arm. Boundary Cos., A Bethesda, Maryland-based company founded in 2014, announced that it has closed its first investment fund, last month. Although Boundary did not disclose the amount of the fund, he said he plans to undertake investments of $ 300 million.
Private equity has long been a source of capital for developers, designers and builders. While companies raising their own money are not “uncommon”, Peter C. Lewis, president of Wharton Equity Ventures, told GlobeSt.com, “you are seeing a little more traction.”
One of the reasons is the financial interest of real estate companies and investors. Without private equity intermediaries, the company obtains more profits and the limited partners have less dilution of investments.
Projects like those of Neyer and Boundary are likely to be attractive due to their focused nature. “Investments should also be very focused on areas with the potential to outperform,” Paul Getty, CEO of First Guardian Group, told GlobeSt.com. “Both of these funds are targeting very hot areas – distribution centers and last mile storage, which can also be a type of distribution center for small retailers and mom and pop entrepreneurs.”
“Many companies [property management, construction management, development] say, “If we can do all of this, why can’t we also be in the fund game?” Marc Feigelson, co-leader of the real estate and construction practices advisory group at accounting and consulting firm Kaufman Rossin, told GlobeStreet.com.
“Real estate operators are getting smarter,” says Lewis. “They come to the conclusion that it is better to do this internally.”