Albany Road pursues investment opportunities priced in the $10,000,000 - $50,000,000 range. This is inefficient and fertile space in which to operate, as the deal size is typically too small for major institutional players to focus on and too large for the typical private operator to tackle. The firm feels that the risk-return metrics found in this pricing range are notable.
Albany Road attempts to take advantage of the pricing inefficiencies found in this space to acquire assets that generate estimated net returns as follows:
- Average Cash-on-Cash Yields: 11% - 15%
- Average Leveraged IRR: 16% - 20%
- Average Leveraged Equity Multiple: +/- 2X
Albany Road, as sponsor, capitalizes investments with a minimum of 10% of sponsor equity, with the remaining equity coming from either high net worth/family office and/or institutional equity. The firm then leverages the investments with a 65% - 75% debt component to take advantage of today’s over-valued bond market and the historically low interest rates that continue to exist as a result. Albany Road looks to acquire properties at a favorable cost basis at a discount to replacement cost, thus ensuring that the property will not have to compete (from a rental rate perspective) with any new development projects, when and if they were to be undertaken.
Albany Road pursues a variety of product types to accomplish our goals, including but not limited to (1) urban, suburban, and medical office, (2) industrial, (3) R&D, (4) retail, and (5) self-storage. The firm prefers real estate with a consistent cash flow component, ideally coupled with some sort of repositioning story. This profile allows them to take full advantage of today’s credit markets and to generate the majority of returns via immediate cash-on-cash yields, as opposed to back-loaded residual plays. They are also attracted to deals where at least 70% of the aggregate return is generated from property cash flow.
Additionally, the firm considers acquiring truer value-add product (vacancy, lease-up risk, etc.) if the story makes sense and the projected returns are commensurate with the risk. Albany Road is willing to invest in secondary markets, in particular, those that have historically attracted institutional capital, in an effort to find deals that meet our investment objectives.
Moving forward, Albany Road expects to see many attractive commercial real estate investment opportunities for an extended period of time, given the fledgling and fitful economic recovery and the resulting and continued pricing disconnect in the real estate market (i.e., pricing of core product in core markets versus secondary markets).