In previous blogs, we have explored the benefits of multifamily investing, as well as the differences of investing in real estate vs. investing in the stock market. Today, we are discussing the differences between investing in a multifamily acquisition vs. a multifamily development. The answer, simply put, is when a partner invests in a multifamily acquisition, they are investing in a property that is already built and is being purchased by Metonic. Examples of this would be Torello on Maple and Montclair Village. Alternatively, when a partner invests in a multifamily development, they are investing in a property being built by Metonic/Apogee, such as Ravello 192 or Latitude 41.
When researching multifamily properties to purchase, our acquisitions team usually looks for off-market value-add opportunities that generally range between 100 and 350 apartments. The team seeks secondary and tertiary markets with strong employment, diverse industries, and limited new apartment inventory. The team also looks for assets that are 10-20 years old, with historical underperformance that we can change in a relative short period of time. The value-add and management efficiency makeover can range from a few months to a few years. The cash flow that comes from stabilized deals is not linear, but it is steady. Over the last decade the Metonic portfolio has averaged a 12% cash on cash return inclusive of financings.
When looking for land to develop a multifamily property, the APOGEE team has had success when developing between 6 – 10 acres in top performing secondary and tertiary markets.
The process of investing in an acquisition vs. a development is nearly identical. The investor can fill out the subscription agreement on our investor portal or in person. Investors ranging from large family offices and institutional groups to accredited individuals and 1031 investors typically invest between $50K and $2MM. After the subscription agreement is complete, the investor can either mail a check, wire funds, or, if they are an existing investor in a Metonic property, roll their distributions into the new asset.
Because a development is not fully built and occupied at the time of investment, an investor will likely see returns quicker when investing in a stabilized acquisition. Although a development may come with higher risk, partners will typically receive a higher equity multiple than they would when investing in acquisitions.
Developments are new once built, and therefore do not consume the capital required in the acquisition of a stabilized value-add property. A development will have construction and lease up risk that exceeds a stabilized deal, and the investor will be compensated for that risk. Metonic recently completed Latitude 41 and Ravello 192. Ravello 192 investors received a return of 72% of their initial investment in connection with the stabilization financing. Latitude 41 investors will receive a return of approximately 58% of their initial investment following stabilization financing. A development done right will provide terrific results for our partners, and will quickly exceed the returns of a stabilized deal, as Metonic and Apogee have proven.
In Which Should You Invest?
To conclude, Metonic recommends both acquisitions and dispositions in an investor’s portfolio. Those who want to see distributions in a quicker manner may want to consider an acquisition. Investors who are willing to wait a few more years for a higher distribution may be interested in developments. We recommend our partners diversify their portfolio by investing in both acquisitions and developments, in order to receive distributions quickly on one front and let their investment grow over a longer period of time on the other. To learn more about acquisitions vs. developments, check out our podcast featuring Kassie Inness, Apogee President, Justin Ferrin, VP of Acquisitions, and Davis Wilson, Acquisitions Associate. If you’re interested in investing with us or have any questions, visit our website at Metonic.net or email Josh White, VP of Investor Relations, at firstname.lastname@example.org.