CHICAGO—A group of Chicago real estate veterans has just started a new arm of Magellan Development Group, the company which built the 28-acre Lakeshore East in the city's downtown. Called Magellan Investment Partners, the new group will invest around $300 million over the next few years buying and renovating multifamily communities in select markets throughout the nation.
“With the growth in the millennial market and a demographic shift,” away from homeownership and toward renting, the multifamily sector will provide investors with a host of opportunities, David Levin tells GlobeSt.com. The founder of Levin Realty Advisors will be a principal of Magellan Investment and serve as chief investment officer.
Levin adds that they have identified several markets that will experience strong job growth over the next few years and attract a new group of renters. And in those metro areas, Magellan plans to seek out multifamily properties that, while relatively new, may need updates to offer the types of amenities most renters look for these days. “These will be opportunities to do renovations and grab some rent growth.”
In addition to Levin, Marc Swerdlow, former president and general counsel at Waterton Associates, will be a principal and serve as chief operating officer. David Carlins, president of Magellan Development Group, will also be a principal and serve as chief development officer. The trio has a combined 75 years of experience, and each brings a specialty to the partnership. As the founder of Levin Realty, for example, Levin acquired more than 6,000 units, mostly value-add properties similar to ones he will pursue with Magellan. Swerdlow specializes in investment and Carlins in development.
Levin and the others forecast that the homeownership rate in the US will drop another percentage point to about 61% and then stabilize. “We feel this trend will continue for some time,” he says. “It's important to remember that each time this rate ticks down one percentage point about one million new renters are added to the pool.”
To assemble a portfolio that will tap into this growing pool, Magellan will adopt a twofold strategy, he adds. First the firm will make investments in regions where the development arm already has completed buildings or projects underway. These include the metro areas of Chicago, Minneapolis, Nashville, Austin and Miami. In addition, the firm selected another set of cities, including Denver, all four major Texas markets, Tampa and Orlando, which will experience strong job and population growth over the next few years.
“We looked deep into markets throughout the country and identified the industries that are driving employment growth,” Levin says, and chose cities dominated by sectors such as healthcare, energy and high-tech, all fields that should expand even faster in a recovering economy.
Magellan will probably stay away from metro areas such as New York City, San Francisco, the Bay Area and Los Angeles, he adds, since buying properties there will mean lower returns. However, some cities with a great deal of supply, such as Dallas, still have some submarkets that will experience future growth and remain a target for the firm. “We're not going to get scared out of some areas if the fundamentals of a submarket suggest growth.”
Swerdlow says the new venture will focus on properties built in the late 90s or early 2000s, and steer clear of product that is obsolete or defective. The targeted properties will have enough modern features to make it easy to complete renovations. “We will make them compatible with the new supply coming on the market, but we will be able to offer our units at a lower cost to renters.”
And investors will have the chance not just to make solid investments in multifamily properties, but the “potential for new development opportunities with Magellan,” says Levin. “The key to this whole thing is the Magellan brand.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
