Closing Secondary-Market Deals With Equity Providers

Farrell: “The average buyer would rather be closer to their work (reduced commute times), so, if they can afford to, they will focus on the primary markets.”

NEWPORT BEACH, CA—Focusing on return metrics, a team’s ability to execute, location and what makes the specific project unique from its competition will make equity providers take notice on secondary-market deals, Landmark Capital Advisors ‘ director of business development Tom Farrell tells GlobeSt.com. The firm secured $14 million of JV equity to finance the acquisition , development and construction of 152 residential units in Oxnard, CA. Farrell says getting a capital partner comfortable with entering a market considered secondary with a large lot count was challenging, but his firm was able to identify a top-tier equity provider and provide ongoing support to ensure a successful close. We spoke exclusively with Farrell about the deal and about working with equity providers in secondary-market transactions. GlobeSt.com: Why are equity providers uncomfortable with providing equity in secondary markets now that primary markets are often built out? Farrell: In any downturn, sales prices soften in general so homes in the primary markets become more affordable—to the detriment of the secondary markets. The average buyer would rather be closer to their work (reduced commute times), so, if they can afford to, they will focus on the primary markets. GlobeSt.com: What does it take to convince equity providers that a deal is worth their consideration? Farrell: An equity partner is concerned with return metrics, the team’s ability to execute, location and what makes the specific project unique from its competition. Although Oxnard is considered a secondary market, it has a number of compelling attributes including scarcity of lots and a tough entitlement process, which limits supply; existing new-home communities are experiencing significant absorption and are nearing sell-out; easy access to a major thoroughfare, the 101 Freeway, which gives access to employment centers to the north and south; relatively mild climate and recreational opportunities due to proximity to the beach (~5 miles). GlobeSt.com: Once the project financing is obtained, what else is necessary for ongoing success of an acquisition, development and construction project in a secondary market? Farrell: Timely execution of the business plan, including completing improvements on time and on budget, an effective comprehensive marketing plan to bring in prospective buyers and a relationship with best-in-class mortgage providers that have programs for FHA/VA , low down payments for first time home buyers and for those with blemished credit to insure home buyers can get financing. GlobeSt.com: What else should our readers know about this particular acquisition? Farrell: It was a legacy property from the last downturn that the new developer was able to shepherd through a very difficult entitlement process, creating an enticing project for potential equity investors. With developers leveraging development and redevelopment opportunities across all property types, how can you capitalize on this activity?  Join us  at RealShare Orange County on August 16^th for impactful information from the leaders in Orange County CRE. Learn  more . Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What’s driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.