Behind the scenes with Blackfin Real Estate investors



Earlier this year, Blackfin Real Estate Investors acquired Mosaic at Largo Station in the Washington, DC metro in partnership with Clarion Partners Real Estate Income Fund Inc. deals Blackfin has been doing since it was founded by industry veterans Andrew Buchanan and Doug Root five years ago.

Focusing on value-added apartment buildings along the East Coast, Blackfin has closed nearly $ 1 billion in deals led by Buchanan and Root, both managing directors. Today, the investment store in Arlington, Virginia boasts a team of 15 multi-family relations professionals and owns and operates a portfolio of 33 apartment properties totaling over 7,400 units.

About a year after Blackfin was founded, Buchanan and Ruth made the decision to open a subsidiary to provide construction management and general contracting. Iron Fish Construction enables Blackfin to pursue its valuation strategy and differentiates it from other investment firms when it comes to raising money from private and institutional investors.

These questions and answers have been edited for greater length, style, and clarity.

WMREA: When you launched Blackfin, your strategy was to invest exclusively in multi-family value-added assets in the East Coast markets from Massachusetts to South Carolina. Has this strategy been successful? Has it changed or developed in any way?

doug-root.jpgDoug RootA few years ago, we realized that value-added apartment buildings provide attractive risk-adjusted returns. We are nearing completion of $ 1 billion deals and our investment strategy remains value-added. We are very lucky to have a great team. You may have the greatest vision in the world, but if you cannot hire the right people to help you realize that vision, it is difficult to succeed.

WMRE: From Massachusetts to South Carolina – a fairly large strip of the East Coast. Which markets do you find particularly attractive? Why?

andrew-buchanan.jpgAndrew BuchananA: We stuck to this geography because that’s where we spent our entire career. We know the players and the markets and we know how to work for them. The markets at the top of our list are at the top of the list of all: Charlotte, Raleigh-Durham, North Carolina, Richmond, Virginia, and Washington DC. We also love Florida and Georgia and are in the process of developing. our team to succeed in these locations. Our long-term goal is to be a national investor and have teams that cover all major gate markets via Sunbelt

WMRE: The multi-family sector is one of the most popular and competitive asset classes today. How does Blackfin face competing buyers and come out on top?

Doug Root: You throw, if you throw enough darts, you end up hitting the bull’s-eye. We were lucky early on, we found the transaction that pushed us to work, and then we closed our second trade and got some momentum. In 2021, we closed 13 deals. I think this makes us one of the most active buyers in the market. In every trade we have done so far, we could find a corner with a broker or seller to win the trade. We could easily finish second every time, but we were in the right place at the right time to finish first.

WMRE: What type of investor is Blackfin targeting? Do you expect your investor base to change in the near future?

Doug Root: When it comes to raising capital, we are very diversified. Our investors range from private and institutional investors, from pension funds and family offices to wealthy asset aggregators who syndicate and seek business partners. We have increased our equity capital through our own network. Initially, a key component of our growth strategy was building and strengthening existing relationships. We are already doing this a little, and it is bearing fruit.

WMRE: How does Blackfin attract new investors? What kind of investor relations do you do?

Andrew Buchanan: We raise money from deal to deal. We are always ready to talk to any new source of capital, but this is no longer a concerted effort. Now we are in a good place where justice finds us. Today we are more focused on finding good opportunities and combining them with capital. We screen investors and determine if they are suitable. We need patient and aggressive investors at the same time. We think you can be more aggressive if you have the money of patience.

Doug Root: Most of our investors are regular clients looking for long-term rewards and stable cash flow. They trust us and know that because we have huge access to the flow of deals, we will show them the best investment opportunities.

WMRE: When you established relationships with institutions, did you find that it was more or less difficult than you expected?

Doug RootA: Andy and I both made a lot of institutional investments with our previous companies, and we knew what to do to get the institutional investor to want to invest with us.

WMRE: What do you think sets your firm apart from other multi-family investors?

Doug RootA: We are very fortunate to transfer the best practices from our institutions to our business and assemble a team with a similar mindset. When we first started, we were like any other value-adding owner operator. But today we have Iron Fish. The investor world, especially institutions, longs for an owner-operator who also provides complex reporting and construction work.

WMRE: Could you tell us a little more about Iron Fish? What prompted you to open a general contracting / construction firm?

Doug Root: We launched Iron Fish in July 2017. We were in the right place at the right time and got the opportunity to work with Forest Dalton, who has been working as a general contractor for over 30 years. We needed construction experience to grow our business, and he wanted to change careers. We felt we could complement his construction knowledge with business, operations and accounting experience to create a sustainable GC business.

WMREDoes Iron Fish only work on behalf of Blackfin or work with other clients?

Doug Root: No. Iron Fish serves over 100 institutional owners and operators.

WMRE: How has Iron Fish changed your investment strategy and profitability?

Doug RootA: The main difference is that it now allows us to tackle more complex repairs and delayed maintenance projects that we might face if we didn’t have the depth of construction knowledge we now have.

WMRE: How do investors react to information that you have Iron Fish as a partner? Do you think this makes you more attractive to investors, especially institutional investors?

Doug Root: The ability to monitor the progress of construction is a huge incentive to increase the confidence of both existing and potential investors. This is one of the biggest investment risks we make and they are confident that our budgets are accurate and that we can deliver on the business plan.

WMRE: How does Blackfin communicate and maintain dialogue with its existing investors to make sure you are on the same page regarding strategy, target return, etc.?

Doug Root: We regularly communicate with our investors. Not a day goes by without us discussing with investors. We communicate with new opportunities more often.

WMREQ: What role does technology play at Blackfin, especially when it comes to communicating with investors, raising money, managing your property, and sourcing?

Andrew Buchanan: We have an investor portal that is more focused on syndication deals. He keeps track of all K-1s. We reach out to these people once a quarter, and with our institutional partners we have calls every two weeks.

WMRE: How do you most often structure deals?

Andrew Buchanan: Each transaction is concluded in a separate joint venture, and we are the GP. We invest from 5 to 10 percent of the capital and increase the capital of LP.

WMRE: What kind of return do you expect from your investment?

Doug Root: We are looking for a 12% to 18% yield at the trade level, depending on risk and leverage, and retention period. We find good risk-adjusted returns in each of these segments.

WMRE: What is your average retention period? Does it vary from deal to deal or is it the standard?

Andrew Buchanan: Average three to five years. Given the nature of what we do – renovations and relocation – it is best to be flexible about the waiting period.

WMRE: What leverage do you usually use in a trade?

Andrew Buchanan: We usually bet 60 to 75 percent LTV. Our relationship with creditors is important, but in the end the terms win. Most of our loans are issued to agencies. [Fannie Mae and Freddie Mac]and the borrowed funds were super competitive. We didn’t do CMBS [deals] because we didn’t find them to be competitive.

WMRE: How has the pandemic affected your investment strategy, as well as your existing portfolio and your investor relations?

Doug Root: We are very lucky to have been able to grow at a very aggressive pace all this time. I think a lot of this has to do with working in the multi-apartment sector. There is a huge shift right now from other sectors to the multi-family sector. This capital shift has made things difficult for us in a way, because there is so much more capital competing for the same transactions. But it’s also great because new investors came into the multi-family space and wanted to join groups like ours. Operationally, it was much more difficult, not only in terms of managing the corporate office and implementing protocols to keep everyone safe, but also in terms of managing property and collections. This has definitely increased the workload on our asset management team and changed the way we approach what we do.

WMREQ: What was your biggest failure in launching and developing Blackfin?

Andrew BuchananKnock on wood, the biggest setback right now has been the use of urgent debt on some of our deals, especially when interest rates fell so precipitously. We thought we were smart when we did it. Who could have predicted the pandemic and where did the interest rates go? The downside is that the spreads could explode and we could be completely demolished.

WMRE: When you launched Blackfin, you said that a foundation or foundations could be Blackfin 2.0. Are you ready for the money?

Andrew Buchanan: The short answer is no. We think that without using cash for the firm, you can do better in the long run. For now, we think one-off joint ventures are better for us.


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