Growth of the EquityMultiple Portfolio Amid Market Upheaval
The global pandemic presents various economic challenges. The long-term impacts on real estate markets will vary across geographies and property types, and may take years to fully manifest. Right now, the areas of greatest stress are the obvious places – hospitality, senior care, and retail. Fortunately, EquityMultiple has limited exposure to those property types.
Despite construction delays, a decline in consumer spending, and the significant decrease in foot traffic to all property types, EquityMultiple’s portfolio has continued to exhibit positive growth throughout this year, as has the volume of distributions paid to our investors through returns and repayments throughout 2020.
- In June, EquityMultiple surpassed $150M in total originations since inception.
- EquityMultiple investors have now participated in real estate transactions accounting for over $2.7B in total capitalization.
- The successful raise and close of our largest single-asset investment to date: a mezzanine debt investment into a 155-unit Class A multifamily development in West Harlem, Manhattan – a project with a $184.5M total capitalization.
More details can be found in recent coverage from MarketWatch.
Continuing Trend of Increased Distributions
Despite a challenging macroeconomic environment, our cash-flowing assets generally continue to perform and deliver distributions to our investors. EquityMultiple’s total volume of distributions continues to grow steadily year over year.
More than halfway through 2020, distributions are anticipated to increase by over 50% compared to 2019.
A Current Snapshot of the EquityMultiple Portfolio
A real-time look at EquityMultiple’s investment portfolio makeup is available on our Track Record utility. EquityMultiple offers investments across core commercial real estate property types of multifamily, industrial, and office (and retail to a much lesser extent). We also offer a diverse array of investments into non-core property types, particularly those that offer a counter-cyclical or recession-resistant investment thesis.
Here is a detailed breakdown of our current asset allocation as of July 21st, 2020:
- Condo, Townhome, Other Residential – 19%
- Multifamily – 18%
- Office – 13%
- Hotel – 11%
- Industrial – 10%
- Mixed Use – 8%
- Car Wash – 7%
- Manufactured Housing Community – 4%
- Health Care & Senior Housing – 4%
- Student Housing – 3%
- Self-Storage – 2%
- Retail – 2%
- Land – 1%
This diverse portfolio of assets spans 51 geographic concentrations across the United States, reflecting a network of 62 lender and sponsor partners. This multi-dimensional diversification should position investors well as the economy recovers. EquityMultiple will continue to offer a diverse set of investments across property types, geographies, and sponsors/operators.
EquityMultiple offers investors the opportunity to invest throughout the real estate capital stack. The ability to identify investments from debt to equity enables investors to tailor their real estate portfolio to their risk tolerance and return objectives. Below is a summary of the current exposure of EquityMultiple’s portfolio to the various portions of the capital structure:
From the bottom to the top of the capital stack:
- Senior Debt: 13%
- Mezzanine Debt: 9%
- Preferred Equity: 43%
- Common/JV Equity: 35%
An Update From Our Asset Management Team
Asset Management Operations
EquityMultiple’s Asset Management Team monitors investments from inception through exit, stepping in where necessary, and working closely with sponsors, lenders, and operators to address challenges at underlying properties and to maximize returns. COVID-19 has presented unique challenges in certain markets and sectors of the economy. Many EquityMultiple assets are positioned well to withstand the impacts of the pandemic. Demand dislocations, construction stoppages, and other factors may present challenges. As such, the Asset Management Team continues to work tirelessly on behalf of our investors.
Below are some proactive steps taken by the Asset Management Team to maximize investor value in addition to some portfolio performance statistics:
- The Asset Management Team has completed nine restructurings – forbearance, loan modifications, or other revisions to the initial structure of investments – in the interest of protecting investor capital. This includes five hospitality assets.
- With six additional restructurings nearing completion, total restructuring will account for $33 million in assets under management.
- Among EquityMultiple’s 74 active investments – totaling $123M in assets under management – occupancy rates stand in the high 80’s to 90’s, with rent collections holding up well aside from a few isolated rent relief situations.
- Implementation of more frequent reporting cadence for assets that are facing challenges. As always, updates can be found on the My Activity page within the EquityMultiple platform.
Four investments have been realized since the beginning of April, with an average realized IRR of 14%*. As always, these results are reflected in the aggregate returns presented on our Track Record page.
Restructuring – a Case Study
To illustrate the work of our Asset Management Team in greater detail, here is a brief synopsis of a recent restructuring – of our Williamsburg Mixed-Use Office & Retail preferred equity investment.
New York City experienced the worst initial outbreak of the virus of any city in the country. The governor issued a stay-at-home order on March 22, directing all nonessential businesses to close at least through May 15. Given the shutdown and the property’s closure, the sponsor actively engaged in discussions with all stakeholders, including the tenant, senior lender, and other investors, as well as applying for assistance programs. EquityMultiple was in close contact with the sponsor throughout these discussions.
The sponsor explored a loan modification of its current debt obligations with the lender. As required by the partnership agreement, EquityMultiple had certain approvals on the lender’s modified terms. Ultimately, the modification provides for senior loan interest payments to be satisfied through a combination of deferral, lender reserves, payments by the sponsor, and property cash flow.
Concurrently, EquityMultiple restructured the preferred equity investment terms, allowing for the deferment of interest for three months to coincide with resumption of rent payments by tenants at the property. The total amount of the deferred interest will be added to the principal amount payable at maturity.
These accommodations by the parties should provide the sponsor with a pathway to allow the property to return to normalized operations.
A Final Note
In April our Asset Management team issued a commercial real estate sector outlook. We intend to publish additional sector outlooks in the coming months.
For the time being, each announcement of a new investment opportunity will contain information regarding why we feel the investment is compelling in the context of COVID-19 and its economic impact.
*Past performance is not a guarantee of future results.