March Newsletter
Have you heard the news?
In a sea of low yields, inflation, and excessive volatility, our job is to find antidotes. As such as we are pleased to share the latest additions to our curated, private real estate portfolio that met all of our rigorous screening criteria.
In a sea of low yields, inflation, and excessive volatility, our job is to find antidotes. As such as we are pleased to share the latest additions to our curated, private real estate portfolio that met all of our rigorous screening criteria.
In the property Spotlight below, you can learn more about each property, and how we believe they can create value for our investors.
Want to dive even deeper into the guiding principles of our investment thesis? Visit our website to learn more.
Stay tuned for more updates regarding the success of our first fund and what to expect next from Priority Funds!
But first…we would like to share some insights into how current events could impact the market and what Priority Funds is doing to mitigate any potential risks. Continue reading to find out how!
| Inflation, Recession? Priority Funds: covering all the bases
The tailwinds over the last few years pushing stocks and real estate to all-time highs and bond yields to lows are transitioning into headwinds. The Fed intends to raise interest rates and end quantitative easing. The combination of fiscal stimulus, the invasion of Ukraine, and the spike in commodity prices are causing inflation to spike to 40-year highs. Investors are concerned about the prospect of stagflation and ultimately, perhaps another recession. As fund managers and investors in Priority Funds ourselves, we are keeping a close eye on these developments and factor them into our investment process in four ways: 1. Diversify: Not only do we diversify by region, sponsor, and property type, but we also diversify for different market outcomes. We proactively add different property types for inflationary, stable, and recessionary economic scenarios. 2. Stress test: Before investing in any property, we stress test each one to see how it may hypothetically perform in poor weak economic periods and favor those with less downside. 3. Our investment thesis has inherent defensive characteristics: Places that people love, such as walkable transit-oriented neighborhoods, tend to rise more in up markets and fall less in down markets. 4. Real assets that generate an investment stream: We invest in private real estate, a hard asset, that generates a high and reliable stream of income, which can act as an inflation hedge and reduce overall portfolio volatility. As some of the largest investors in Priority Funds ourselves, we have a lot of our own skin in the game and are highly incentivized to proactively manage the portfolio for a potentially successful outcome regardless of the economic environment. Covering all the bases, it’s what we do. |
The first asset addition, known as The Joinery, is located in the strong submarket of Charlotte, North Carolina. This two-building mixed-use multifamily community is currently in Phase II of a walkable, master-planned development.
The historic Mill District Neighborhood will be a walker's paradise with numerous shops, and dining options, with transit options like the light rail’s Parkwood Station, all accessible by foot. Developing the Joinery with transit-oriented strategies also allows residents easy access to NoDa, the city’s arts and entertainment district, and a 13-minute commute to downtown Charlotte.
The value for this asset will be strongly boosted by utilizing the ground floor as a retail space. the 17,000 SF will be "anchored by a well-regarded local brewery who contributed land...and will also feature small unit sizes to attract a variety of retail tenants, including boutiques, showrooms, neighborhood services, and local businesses."
Priority Funds firmly believes that when one considers real estate opportunities, factors like walkability and transit access are often paramount when investing in places people love.
Charlotte, North Carolina has quickly become a very desirable market over the last decade. The business-friendly city's population growth has also increased by 15% since the 2010 census and a projected 16% growth by 2030. Notably, Zillow even ranked Charlotte as #5 on their top "10 Hottest Housing Markets in 2022!"
With much of our own skin in the game, it is a great honor to share the excitement of this deal's potential alongside our investors.
Our second addition is West Jackson a Class-A office building located in Chicago's CBD (Commercial Business District). According to CrowdStreet, this asset includes a credit-backed rent roll, heavily cash-flow, discount to appraisal value, comps, and replacement costs. This will allow for the opportunity to achieve strong risk-adjusted returns.
Property value increase can also be attributed to the recent increase in transit-oriented West Loop leasing activity. This is evidenced by new leases recently executed at the Property. The low acquisition basis at $311 PSF relative to the Chicago market at $510 PSF provides excellent downside protection coupled with flexibility from attractive 17,500 SF floor plates.
Crowdstreet reports that "Despite the stabilized nature of the asset, the outsized return profile can be attributed to both the opportunistic acquisition and the recent leasing executed by the Sponsor (Nightingale Properties) since gaining control, demonstrating their ability to add value before closing."
Like other successful assets in Priority Fund's portfolio, West Jackson was purchased by Nightingale Properties at a 20% discount to pre-COVID market price and the lender’s recent appraisal suggests an as-is value of $140M for the Property. This discounted acquisition price allows for risk-adjusted flexibility and attractive cash-on-cash returns for investors.