Steinbridge creates debt capital markets, capital raising role ahead of $1.3bn pipeline

March 11, 2024 contactdesigners

Steinbridge creates debt capital markets, capital raising role ahead of $1.3bn pipeline

Real Estate Capital USAThe Steinbridge Group, an impact investment group that focuses on attainable housing, last week hired Jay Dunn from New York manager RFR Holding to head a newly created role overseeing capital raising, debt capital markets and investor relations as it seeks to capitalize a pipeline of more than $1.3 billion of build-torent and single-family rental properties.

The New York-based manager has $450 million of active projects and is working with both institutional and family offices investors to arrange debt and equity financing, Dunn said.

“The total capitalization for those projects will be on the order of $150 million of equity and $300 million of debt,” Dunn added. “My role is to source each of those components and capitalize those deals.”

The firm is looking at several ways of capitalizing its pipeline, which includes an initiative through which it is building attainable housing in partnership with Historically Black Colleges and Universities (HBCUs), Dunn said. Steinbridge last year announced a $100 million commitment to HCBUs that will transform underutilized real estate or land into housing or other related uses that have a positive impact on the institutions and the broader community.

“On the equity side, we are pursuing a fund strategy with pension funds and endowments that will specifically target our HBCU initiative,” Dunn said. “In parallel, we are looking at capitalizing projects individually or programmatically with institutional and family office investors.”
He continued: “Our strategy, specifically within BTR or single-family rental space, sets up well for programmatic capital. The individual deal sizes for these projects can be smaller, at about$15 million to $20 million of equity, although we also have deals that require $50 million or more of equity.”

The firm anticipates working with a wide swath of lenders on its projects.

“Banks are a smaller piece of the real estate financing market than they used to be, driven in part by their exposure to the office sector. That has had a trickle-down effect to other sectors, but we are getting quotes every day at relatively attractive rates,” Dunn said. “We see that from alternative lenders, publicly traded REITs and still some bank lenders that don’t have the same level of exposure and impairment from loans to the office sector.”

Investment thesis

Steinbridge is working to expand its attainable housing platform via private capital solutions at a time when there is a well-documented housing shortage in the US.

“On aggregate, there is an estimated shortfall of three or four homes in terms of available supply versus households. Within the attainable housing sector where Steinbridge focuses, the problem is much more acute,” Dunn added. “From an investment perspective, single-family rentals and build-to-rent communities in particular have significant demographic and secular tailwinds behind them, and we believe we are still in the early innings of that growth cycle.”

The index of affordability for homeownership is at the lowest level it has been at since 1989. “If you look at what it costs to buy versus rent, that delta hasn’t been this wide in decades,” Dunn said. “This is the opportunity for impact-focused investors and builders like Steinbridge to create supply where it is most needed, to earn a market-based rate of return and to have a real impact on those communities.

The single-family sector is seeing tailwinds from several secular and demographic factors, including people working from home more often and needing to balance their family and workspace at home. “Unlike multifamily, where there are about 500,000 units being delivered each year, there is a fraction of that in single-family,” Dunn added.

Looking ahead

Tawan Davis, chief executive and founder of Steinbridge, said the firm brought on Dunn as a key part of its growth strategy. This includes bringing in investors that will allow the firm to build or redevelop properties that will transform communities and expand its platform and relationships with HBCUs.

“These institutions have excess land in and around their campuses that has been sitting there for decades and they don’t have the necessary expertise or capabilities to develop this land in a way that is impactful for them,” Dunn said. “In our structure, the university contributes the land into a joint venture with us and we bring the private capital and real estate expertise to develop housing for the institution and the surrounding community.”

The firm is gearing up for a significant expansion, Dunn added.

“We have some fantastic projects located across the country within our HCBU strategy as well as in other impact-oriented strategies that will break ground over the next few quarters.”

Read the full article at Real Estate Capital USA.