The fund, for which the Scottsdale-based company serves as managing partner, has access to approximately $100 million of capital for acquisition of undervalued infill assets. It will focus on all-cash transactions but may consider joint ventures with land owners.
Paul Charles, Laguna Pacific's vice president of site acquisitions and development, describes the firm's investment partner as a European investment banking firm with more than $8 billion in assets. He says it is looking to deploy a considerable amount of capital for distressed properties in the US market and has committed to providing 80% of the capital.
According to Charles, the fund is banking on the potential return of these properties in two to seven years. "We are at the point of maximum financial opportunity," he says. "The economy has tanked, there are extremely limited financing options and there's a glut of residential home inventory." A second fund is being contemplated when the first is fully vested, he adds.
The Laguna Pacific exec tells GlobeSt.com he expects to have the first property in contract within the next 10 business days. "We are currently reviewing a good number of opportunities in the Phoenix metro area, along with some in California and Nevada," he says. "We are being very selective in the projects, which we plan to move forward with, as we want to make sure we hit our rather high IRR targets within our two to seven year holding period. Our due diligence process is very thorough and affords us the ability to systemically review multiple projects simultaneously."
The target property value is $1 million to $5 million, though Charles says the fund will consider going up to $20 million. "We have found that the smaller projects in general yield better returns," he explains. "We are looking for infill residential land properties, which also includes multifamily and mixed-use parcels with a residential component. At the top of our list are finished production home lots."
Charles notes the fund will sometimes be able to help current land owners who are also home builders by providing what amounts to short term land banking assistance. "Some builders have spent years taking raw land through the process of producing finished lots, only to arrive in our current economic situation in which there is little demand for new production housing. With our arrangement, the home builders may get that second chance to build out their subdivision," he says.
In Charles's opinion, there is no better time to invest in Arizona and parts of California. "Despite the current state of the economy, Arizona is still a very appealing place to live and has a strong future, which is why we're investing our resources right here in our back yard," he says. "Arizona and California have the most concentrated areas of distressed sales, with housing prices down in some places up to 63% of the peak just two years ago. We're in a position to take advantage of this downturn and help homebuilders who are struggling financially gain back their grounding, giving them a chance to reinvent themselves for when the market comes back, and most importantly before the banks come in to foreclose."
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