Six months after its first acquisition, an upstart real estate investment firm just sealed its second deal and has more in the works.
Capital Square Realty Advisors, headquartered in Innsbrook, this month acquired a 102-unit apartment complex in Tallahassee, Fla., for about $8 million.
Getting into the apartment business marks a detour from the firm’s original course, which had focused on acquiring commercial properties with a single tenant on a long-term lease.
That proved to be too narrow in a competitive market for deals, said Capital Square founder and chief executive Louis Rogers.
“We turned down a lot of very nice deals, so we decided we’d go with multifamily and other asset classes,” he said.
The firm continues its model of allowing investors to buy into the individual properties through the 1031 exchange process. The structure takes advantage of a tax rule allowing sellers to transfer proceeds from the sale of similar properties into another property while avoiding taxes on the profits.
Investors also each get a percentage of the rent on the properties they buy into through Capital Square.
So in the case of the Tallahassee deal, Capital Square investors have the chance own a stake of a 6.5-acre complex near Florida State University called Ashford Club Apartments.
Capital Square makes its money by charging a flat fee for the management of each property and a one-time acquisition fee charged to 1031 exchange investors.
Rogers, who was previously a longtime attorney at Hirschler Fleischer, said the firm aims to do about $100 million worth of deals in the next 12 months. They’ll likely be a mix of apartment and commercial properties.
But good deals are hard to come by, Rogers said.
“It’s one in 100 that get to closing. It used to be 1 in 10, he said. “Many of the quality properties have been gobbled up by the REITs and the funds.”
Capital Square made its first purchase and share sale to 1031 customers in December, with a $20 million acquisition of the 112,000-square-foot Milwaukee headquarters for health-care company ProHealth Care.
It funds its deal from a variety of sources, Rogers said, including financing from life insurance companies and commercial mortgage-backed securities loans.
Next on Capital Square’s hit list is a medical office building in Greenville, N.C., leased by East Carolina University. Rogers said that the purchase price will be about $4 million and that the deal should close next month.
He said the company is also looking for deals in Richmond.
“State capitals are very stable. They tend to be more recession-proof,” he said. “We’d love to find properties just as good locally, and we will.”