Real estate investment management firm Black Creek Group recently reported that its fundraising had surged to $702 million through July 31, 2019, including $290 million in equity commitments from institutions. The company raises capital across different solutions. Black Creek has been busy putting that capital to work. During the first seven months of the year, the firm acquired 4.7 million sq. ft. of assets and has 3 million sq. ft. of industrial properties under construction. Black Creek’s holdings currently span about 67 million sq. ft. of industrial, multifamily, office and retail assets. NREI recently talked to Black Creek CEO Raj Dhanda about the firm’s recent capital raising and the market climate for new acquisition and development opportunities.
NREI: Your firm raised $702 million through July 31st as compared to $817 million for the full year in 2018. What’s driving that momentum?
Raj Dhanda: I think there are a couple of factors contributing to our success. One is more specific to Black Creek. Black Creek’s story of being focused on a real estate operating model that combines acquisitions and development to assemble portfolios one property at a time is in demand and attractive to a lot of different investors. More broadly, I think commercial real estate continues to be an asset class that is benefiting from capital flows and increased investor allocations. Of course, low interest rates and a fundamentally strong economy don’t hurt either.
NREI: It is now almost end of third quarter. Has that fundraising momentum continued?
Raj Dhanda: I don’t like to overpromise and under-deliver, but I feel confident that we will raise as much in the second half as we did in the first half. We had a great start with the third quarter, and it looks like we will continue to see support from institutions, family offices and high-net-worth individuals in the fourth quarter.
NREI: What’s your main focus for deploying capital?
Raj Dhanda: We continue to focus on high barrier to entry, Tier I markets, but will do some deals in Tier II markets. We feel that throughout cycles they tend to stand up well. We have core industrial activity where we are acquiring class-A product in Tier 1 markets, particularly coastal markets. We are also active industrial developers, and recently have acquired some multifamily assets.
So, there is a breadth of activity today. We really focus on having the discipline and infrastructure to handle a lot of activity. Our investment committees, due diligence and execution teams are at work buying an asset or two every week. Most of our activity today is in the industrial and multifamily asset classes.
NREI: So, looking at industrial first. What are you seeing in terms of acquisition opportunities and what is your strategy there?
Raj Dhanda: Eighty-five percent of our acquisitions and asset management teams are located in local markets. So, they are working with local brokers to find the typical sellers that you would expect. In addition to those sellers, we have found that more users today are buying and selling real estate. The evolution of a company’s needs change and so does the investment cycle for the owners.
We are in what many will say is an expensive time to acquire assets. But given the strength of the asset class, interest rates and continued trends in e-commerce, we still feel we are able to find good assets to acquire.
NREI: What types of industrial assets is your firm looking to acquire?
Raj Dhanda: Consumers are changing. You need to be able to deliver product and packages now same-day or within a day. This change has resulted in strong demand for last mile space and we continue to look at in-fill assets, mostly class-A.
NREI: What’s your strategy on the development side?
Raj Dhanda: It’s the same as I mentioned with respect to markets. We tend to focus on Tier I markets. For example, we recently embarked on a construction project, River Point, in Atlanta. It is about 777,000 square feet. What is important to us is that it is three class-A buildings that will give us the ability to provide space for multiple tenants that are small and large in nature, ranging between 40,000 and 400,000 square feet.
We also have a new project in Charlotte that is the same concept, class A, multi-tenant with the ability to offer different layouts and sizes. That project is scheduled to be complete in the fourth quarter. And then in Florida we have construction underway on a project in Broward County that is around 400,000 square feet in two buildings that should be done in the second quarter of 2020.
NREI: Is Black Creek concerned about any headwinds ahead for industrial on the supply side or any negative impact from the trade war?
Raj Dhanda: We tend to spend a lot of time thinking about the asset class. As a developer, I think we know what tenants today are looking for, and that makes our acquisitions that much sharper. Cap rates have approached the lowest levels that they have in recent memory. We think a lot about making sure that we have assets that will perform well in all cycles. We also spend a lot of time thinking about where we are in the evolution of e-commerce as a tailwind for industrial.
The bottom line is that we don’t think the e-commerce shift in consumer sales is done. So, we think those tailwinds will continue to be in place and we feel really good about the footprint we have. I will say that in the short and medium term we have seen some modest uplift from the U.S. China trade war talks, because there is greater urgency for the movement of goods on the expectation that there could be a more significant trade war that could impact activity. In the longer term, there is no doubt that a trade war would not be ideal, but I think that would take some time to sweep through to industrial real estate.
NREI: What’s your strategy on the multifamily side?
Raj Dhanda: I mentioned that we’re in a different place in terms of consumers’ demand for convenience, and we see that affecting most of commercial real estate. The expectations of millennials and the ability to receive goods quickly has had an effect on industrial that has pushed everyone to up their game, and we have seen how that affects retail and omni-channel strategies. We have also seen it affect the multifamily assets that we focus on. We want assets that are relatively new build and offer an incredibly high level of convenience to the resident, with easy access to coffee, gyms, dry cleaners. Everyone today thinks a lot about their location, and they are willing to pay for amenities that they probably wouldn’t have had on their list 10 to 20 years ago. So, we are thinking a lot about these issues when we look at multifamily.
NREI: What do you see ahead? Any potential changes in strategy for your firm, or any bigger picture trends or factors in the economy that you’re keeping a close eye on in the near term?
Raj Dhanda: We consider ourselves well-equipped by having a strategy that gives us breadth in terms of capital raising, and real estate activity. Our real estate activity gives us a good balance. I would still say that a great deal of the activity is acquisitions, but having a significant amount of development activity keeps us focused on what tenants are looking for, and gives us the ability to see the full continuum of constantly thinking about replacement costs versus acquisition costs.
Our multifamily acquisitions are fairly new. So, you will continue to see us focus on that asset class. In 2017 we made some decisions to position ourselves for this type of growth, and we’re pretty pleased about where we are. So, today it’s all about execution.
