Investor Eyes Micro Markets in Partnership

A real estate Investor is seeing growth potential in partnering with local builders and developers.

Mountain Real Estate Capital, the equity investment arm of the Mountain Real Estate Group, Charlotte, N.C., closed on a couple of such joint venture equity investments through the second quarter.

In June MREC joined forces with GreenPointe Communities, based in Jacksonville, Fla., to acquire two properties located in north Jacksonville at a combined $4 million investment.

Under the joint venture Mountain Real Estate Capital and GreenPointe plan to construct 78 homes at the Cedar Bay project and sell the remaining 100 lots to approved homebuilders.

It is an excellent opportunity for our group, said Mountain Real Estate Capital CEO Peter Fioretti, because it establishes a relationship that will facilitate more projects in the future.

GreenPointe CEO, Ed Burr, says the joint venture is focusing on acquiring “a broad range of residential real estate assets in the Southeast,” including REO portfolios and commercial properties.

That goal is in line with MERC’s focus on REO acquisitions and NPL portfolios, which represent over $160 million in assets acquired by the end of the second quarter of 2010.

The firm also specializes in acquisitions of opportunistic commercial and residential assets independently or in partnership with developers, and joint ventures with national and regional homebuilders to develop and sell residential lots and houses.

MERC executives say they started preparing for this expansion strategy in 2009 when it hired a group of professionals from GMAC-ResCap’s Business Capital Group where they were responsible for the management and disposition of well over $2 billion of residential assets. And it paid off, they argue, because the team’s expertise has helped grow the firm’s portfolio of properties owned or under management to $1 billion.

The joint venture is one of many sporadic upticks in the activity of equity investment firms in problematic areas like the South.

The challenge is a softening in home price gains, which according to Clear Capital’s Home Data Index, has renewed fears of REO inventory stagnation.

Through August 2010 the national REO saturation dropped only 0.6 percentage points to 22.1% compared to July with higher volatility in the Midwest and South indicating a housing market recovery “will occur segment by segment in micro-markets.”

Volatility at the local level also explains why investors are carefully eyeing very specific markets.

Mountain Real Estate Capital brings to the partnership the expertise and capacity to invest in many types of real estate assets in its acquisition pipeline, such as the two projects located “in the best-performing submarket in the five-county Jacksonville MSA.”

Burr, whose firm has developed 30,000 residential real estate units in Florida and Georgia for the past 20 years, believes “there will be many interesting opportunities over the next few years,” so his goal was “to team up with an aggressive and creative equity group” that is poised to pursue an aggressive acquisitions and development strategy. 

Mountain Real Estate Capital managing director Joel Kaul, who together with a group of other executives worked closely with GreenPointe’s management to structure the joint venture, says a network of developer/builder partners helps to “greatly enhance” residential investment opportunities.

The plan is to aggressively expand MERC’s builder program by partnering with one to two builders “in each major submarket” and then be there to support their business plan.