Cortland closes $1.5 billion value-add multifamily fund – Commercial Observer
Cortland – an Atlanta-based multifamily investment giant – has closed its Cortland Enhanced Value Fund VI after securing $1.5 billion in equity commitments, Commercial Observer has learned.
The fund exceeded its $1 billion target, surpassing the firm’s previous record of $650 million in equity commitments from Cortland Enhanced Value Fund V, which closed in May 2021.
Jason KernCortland’s president of investment management, told CO that his firm is benefiting from a new class of investors seeking to park capital with capital markets professionals who specialize in a single asset class.
“Overall, there has been a trend in recent years for institutional investors to invest in more diversified allocator funds that cover multiple geographies and property types. But on the fringes, there is a general trend to turn to vertically integrated operators or managers like Cortland,” Kern said. “(They) avoid fees, cut out the middleman and go directly to who they see as the top expert in a particular property type and strategy.”
Cortland invests almost exclusively in value-added multifamily properties in the Sun Belt and Mountain West. The company employs more than 2,500 people who handle not only investments and debt, but also property management and construction operations.
“Cortland is the extreme of ‘an inch wide and a mile deep’ in terms of our focus on market-rate multifamily properties that we acquire, renovate, manage and then ultimately dispose of,” Kern explained. “We do one thing and do it extremely well with a level of focus and attention rarely found in the world of real estate investment management.”
Just over half of the $1.5 billion raised by Cortland came from regular investors in Fund V, according to Kern.
He pointed out that although many investors had increased their commitments this time, about a quarter of the new capital came from foreign investors from Europe and Asia and half from new investors. About 80 percent of the fund’s investors were institutional investors, while 20 percent wealthy individuals or family offices.
“We were very keen to expand,” Kern said. “You can’t grow a $650 million fund to a $1.5 billion fund without reaching out to new investors, and our strategic goal was to reach out to new investors overseas and diversify our investor base.”
Fund VI closed $840 million in commitments in February 2023, within the first 12 months of fundraising, and reached $1.45 billion in commitments in February of this year. However, Cortland said it asked several limited partners to delay the closing for a few more months to give new overseas investors time to do their due diligence, resulting in the closing not happening until August of this year, rather than March.
“We asked for this additional time, not a lot of additional money, but these were important strategic relationships for us, this capital from Asia and Europe, for diversifying and expanding these foreign relationships,” Kern said.
He added that while Cortland has secured $840 million in equity commitments through early 2023, the company deliberately refused to deploy the accretive capital during the first three quarters of last year due to concurrent rising interest rates and capitalization rates and the difficulty of determining an appropriate bid-ask spread in an environment of few transactions and high supply.
“With closed-end funds, timing is really important: when do you raise the capital, when do you invest it and when do you sell the assets, and right now seems like a really great time for a strategy like this,” he said.
Steven DeFrancisCortland founder and CEO, said in a statement that the new fund “underscores the increasing demand of institutional capital for multifamily real estate” and investors’ confidence in Cortland’s financial leadership.
“We are grateful for the trust our investment partners have placed in us and look forward to the opportunity to continue to deliver positive results for them,” said DeFrancis.
You can reach Brian Pascus at [email protected]
