Citymark Capital Monetizes Half of First Fund, Eyes Follow-Up

Citymark Capital, which has been providing equity capital for value-add apartment deals since 2015, has monetized roughly half the investments in its initial fund and is said to be gearing up to raise a follow-up.

The Cleveland company was formed and is led by Daniel Walsh, who before the Great Financial Crisis was national head of KeyBank’s real estate capital markets operation. In that role, he ran the bank’s agency lending and CMBS business and also provided equity capital to apartment operators for their investments. He left Key in 2010 and joined Huntington National Bank where he was president of the northeast Ohio region.

Walsh formed Citymark in 2015 to continue the business he had developed while at Key. Banks, as a result of rules promulgated in the wake of the GFC, were no longer able to play the same roles as in the past.

The company had raised $80 million of equity, largely from institutional investors and high net-worth individuals and family offices for its first investment vehicle, Citymark Capital U.S. Apartment Fund I LP. That was leveraged into six investments. It recently completed the sale of three of those, generating $138.8 million of proceeds, and expects to sell the remaining three in the coming months. Two are on the sales market and the third should be soon.

It sold the 274-unit West Town Court apartments to Goodman Real Estate Inc., and it sold the 368-unit Vintage Pointe apartments in Las Vegas and the 240-unit Sweetwater Creek Apartments in Lithia Springs, Ga., to a venture of TruAmerica Multifamily and Blackstone Real Estate Income Trust for $96.8 million. It had invested in the three properties with InterCapital Group of Houston, paying a combined $97.4 million within the past two years.

Citymark has one property in Dallas on the sales block: the 323-unit Villas of Vista Ridge, which it owns with CAF Capital Partners of Dallas. And soon will bring the 104-unit River Edge in Garfield, N.J., to the sales block. It owns the property, just 15 miles from midtown Manhattan, through a venture with C6 Real Estate Partners of Jersey City, N.J.

While it’s monetizing the investments in Fund I, Citymark has started investing on behalf of its follow-up fund, which is said to be targeting raising $150 million of equity. That would give it enough juice to complete perhaps a dozen deals. It’s already completed three deals, investing $37 million in equity in transactions valued at a total of $115 million.

The company so far has invested with four operating partners. But it has relationships with some 200, thanks in large part to Walsh’s previous work at Key. As a result, the company has evaluated some $10 billion of potential acquisitions since its founding.

Citymark pursues investments in properties commonly referred to as workforce housing. Those generally comprise the older, but not oldest stock in an area – constructed in the 1990s and later – and cater to blue-collar workers or others who rent by necessity, as opposed to by choice.

While the company targets the country’s 50 largest markets, it prefers those that are the most liquid. It measures liquidity by property sales volume and counts roughly 40 markets that have seen at least $1 billion of sales. That kind of volume usually indicates that institutional investors are in-market, which mitigates its exit risk.

As more and more investors look for opportunities in the workforce space, a few new markets have become liquid enough in which to invest. Recent entries include Columbus, Ohio, Kansas City, Mo., and St. Louis.

“Citymark is very selective about the assets we acquire, focusing on U.S. markets where population and job growth are fueling strong demand for apartments for the foreseeable future,” Walsh said.

Like other investors in the workforce space, Citymark’s game plan typically involves renovating units, at a cost of $7,000/unit to $10,000/unit, which typically allows it to increase rents. But it’s careful to maintain affordability. Tenants at the company’s properties pay rent equal to an average of 21 percent of their income. That compares with the 33 percent of income that many other workforce investors pursue.

So, the company’s renovations don’t involve trying to bring a class-B property to class-A status. Instead, it will replace flooring, lighting fixtures and possibly adding common amenities in order to bring properties to class-B-plus.

The company’s goal is to increase cash flow, as it assumes that capitalization rates will increase, and revert to the mean, over time.