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REA
October 03, 2018  

Startup, Silverpeak Map Rental-Buying Spree

A new investment shop is teaming up with Silverpeak Real Estate to acquire up to $1 billion of apartment properties over the next five years.

Winmar Capital was co-founded this spring by Kevin Smith, former senior vice president and acquisitions partner at Jefferson Apartment Group of McLean, Va., and Edwin Villegas, president and chief executive of Washington-based Winmar Construction. The new firm, also in Washington, is targeting value-added investments in the Mid-Atlantic and Florida, and already has two deals in the works.

Winmar Capital and Silverpeak will partner with other equity investors on purchases, and plan to use leverage of roughly 65-70%. Winmar Construction, while a separate entity, will collaborate with the investment shop to renovate acquired properties. Smith, managing partner of Winmar Capital, said he expects the new firm to benefit from its relationship with the construction company, as well as its partnership with Silverpeak, a deep-pocketed New York investment firm.

“I’ve worked for two very good multi-family investors/developers,” said Smith, who also spent time at Capreit of Rockville, Md. “And I thought [this] was an opportune time to not only get out there and invest my own accounts, but partner with a very well-respected construction group and align myself with my friends at Silverpeak.”

Winmar Capital is seeking deals averaging around $55 million on properties with roughly 300 units, along the East Coast from Pennsylvania to Richmond, Va., and in Florida’s major metropolitan areas. Typical joint ventures would have Winmar and Silverpeak splitting 10% of the equity investment, with the remaining 90% coming from limited partners such as wealthy individuals and institutional investors. Silverpeak’s broad connections with investors are expected to help identify those partners.

The strategy involves acquiring apartment complexes that are ripe for “heavy lift” renovation campaigns, Smith said. The Winmar team would upgrade them, raise rents and hold the properties for about 5-7 years. Internal rate of return goals are in the mid-to-high teens.

The focus is on rental properties built in the 1990s and early 2000s in suburbs of primary markets. That’s the profile of the two deals, encompassing 500 units in the Mid-Atlantic, that the shop is working on now and expects to close by yearend.

Properties of that caliber — Class-B and -C complexes catering to middle-income renters — have seen strong rent growth and occupancy rates in recent years, but can be difficult to come by. One Washington-area market pro described bidding pools for such assets as “frenzied,” with steady or compressing capitalization rates.

A Philadelphia-area broker said that listings of such properties are generating 30-plus tours and 20-plus offers, and that cap rates in some submarkets are as much as 100 bp below historical levels.

Smith acknowledged the stiff competition and noted that rising interest rates have hardly influenced cap rates. “Acquisition terms have become more aggressive as well, and so we’re being very selective in the deals that we’re pursuing,” he said. The firm will also draw on its relationships with owners to identify off-market opportunities.

Winmar Capital currently has three employees: Smith, Villegas and an analyst. They plan on adding staff as they build up the portfolio.

Smith said he’s been involved in roughly $800 million of transactions over the past decade. He spent about three years at Jefferson and nearly three at Capreit. Before that, he had stints at Hunt Cos. of El Paso, Texas, and Blackwell Advisors of Rockville, Md. Part of his rationale for starting a new shop with Villegas, he said, was to have more control over the construction aspect of value-added plays.

“One of the larger frustrations when working on value-add transactions is in some cases you do not control the construction process,” Smith said. “And these value-add transactions are very sensitive to executing on budget and on time.”

He’s known Villegas for about six years. He said he adopted the name of Villegas’ company, founded in 2003, because of its reputation and established brand. The firm completes about 70 projects annually, and some of its clients have included JBG Smith of Chevy Chase, Md., MRP Realty of Washington and WeWork of New York.

Smith also has past connections to Silverpeak. While at Capreit, he worked with the New York firm on several acquisitions, and he’s known Silverpeak managing director Chris Westfahl for nearly a decade. When his idea for Winmar crystallized earlier this year, the two opted to keep the relationship going.

Silverpeak isn’t new to multi-family investing. Since its founding in 2010, the company said, it has teamed up with several partners on about 70 apartment deals totaling 35,000 units. Westfahl said Winmar Capital’s affiliation with a construction firm helps make it an attractive partner.

“We like Winmar Capital because, one, I’ve had a long relationship with Kevin and know that he’s an excellent sponsor,” Westfahl said. “But also, we think their affiliation with Winmar Construction provides them with some significant competitive advantages in the value-add space.”