By Ed Rowley, April 2024
Greg Fedorinchik oversees equity capital markets and investor relations at NexMetro Communities. NextMetro is a developer of leased home communities featuring luxury single-story detached homes. Since 2012, the firm has raised nearly $500M in equity on a project basis. Greg joined NexMetro in 2023 and has been expanding the firm’s access to equity and debt capital by developing commingled vehicles.
Greg previously held long-term senior management roles at Brinson Partners (acquired by UBS) and Mesirow Financial, along with consulting and interim roles at investment firms. Greg’s experience includes leading portfolio management, strategy, product development and distribution, covering institutional, intermediary and HNW channels globally.
NexMetro Communities is a ground up developer of Avilla Homes Communities. We’ve actively developed housing communities since 2010, and incorporated the business in 2012, making us a leader and pioneer in the build-to-rent multifamily space.
We have 67 employees and have completed or are in-development across 55 developments and almost 10,000 homes. We’ve deployed about $2.5B in total capital to our projects. We’ve historically financed our projects on a project-by-project basis and the 20 projects we have exited delivered investors on average a 24% net IRR.
Avilla Homes communities are “cottage-style” build-to-rent communities – think of them as Class-A multifamily starter homes. Communities are typically between 150-250 homes built on 15 to 30 acres adjacent to fast growing cities – mostly in the sunbelt.
We build one-bedroom, two-bedroom and three-bedroom detached homes. Communities feature gated access, resort style pools and other amenities, like pickleball courts, dog parks, and walking paths. Homes feature private entrances, high ceilings, high-end finishes, no shared walls, and private enclosed back yards.
Our communities cater in large part to professional Gen Z, Millennials and over-55s that are looking for a high quality and low maintenance lifestyle. All maintenance, down to the changing of lightbulbs, is fully included in rent.
We now offer investors the opportunity to invest in the development of these communities through a dedicated fund: The NexMetro Direct Access Fund 2024. The fund is targeting a return of 15%+, underwriting projects that we believe can generate a 15-20% return to the fund.
Our fund just launched at the end of March, so that is taking up a lot of my team’s focus, time and energy. We have raised about $45M already in just a couple of weeks – with a target of $75-100M total equity.
Our development team has a strong pipeline of land and project deals. Given how multi-family housing starts have declined, we are eager to get as many projects in the ground this year as we can, because we think the competition will be very low when we look out to completion in about two years.
We are also working on the design and launch of a new debt fund to help us finance our projects. I am really excited about that. It will have a two-year lock and pay a spread to two-year treasuries. I think that’s novel and I think it is what many investors are really looking for.
The most interesting observation I have is that among our HNW, UHNW and family office investors, there is a stark and quickly increasing demand for yield. This is in large part because that investor segment is aging and looking for more current coupon yield as opposed to investing in long-dated private equity and other types of funds.
The other thing I would note is that investors are still being cautious, waiting for clearer economic and market signals – particularly with respect to interest rates. There is a lot of dry powder. That said, we really think there will be a first mover advantage to people that deploy capital into interesting ideas today. If you wait too long, the train may, as they say, “leave the station.”
I think prospective investors, especially institutions but also family offices and UHNW investors are simply inundated with marketing offers from investment firms. There is so much noise in the marketplace from investment firms, crowd-funding platforms, etc. It is really hard to stand out and it is really hard to curate opportunities and match them to investor interest. Wouldn’t it be nice if there was a better way to match investors to high quality providers?
I would be remiss if I didn’t note something about the AI revolution. The technology is really powerful and we are only starting to scratch the surface on how to best apply it on both sides of our firm – i.e. how do we use AI to make better investment decisions and how do we use AI to help us find investors that want to access what we do?
Referrals, referrals, referrals. Really this is always the best way to find and acquire new clients. We are a pretty small firm – deploying $100-150M in equity capital annually, so in the past we’ve really relied on family, friends, owners, board members, and employees to refer people in their networks. As we grow, we want to get to annual deployment of $250-300M of capital. That is going to require more and larger investors.
Finding more and larger investors will have us focusing on family offices and RIAs and using some niche data providers, cap-intro events and conferences that focus on our target segments. There are some great networks out there if you can tap into them – networks of UHNW, family office and RIA investors looking for interesting private investments.
Databases are a great place to start. In my opinion there are three or four that are really great. I’d highlight two: for managers looking to penetrate the institutional channel which is highly consultant intermediated – the IC Research Institute is the best tool out there. If you are working in that channel and aren’t using it, you are at a disadvantage. I can provide people with referrals and demos. I can’t say enough about how good it is. The other is Dakota Marketplace. I have been a client of theirs in the past and think they are doing a great job further developing their reach among platforms, family offices and RIAs.
Outside of these databases, I think there are some great institutional, RIA and family-office focused conferences and forums out there, but really too many to name. You have to find ones that have the types of investors you are looking for and in the right areas of investment focus.
I worked for long periods at two really great firms: Brinson Partners, which later became part of UBS, and Mesirow Advanced Strategies. The most salient lesson I learned at both places is that a firm with a true focus on clients, with a client-centric culture, will always be more successful.
Virtually all firms say they are client centric, but most firms don’t have what it takes to live client-centricity. You absolutely have to focus on understanding clients and on being true stewards of their capital – that is treating client capital with the same standard of care you do your own, and probably an even higher standard.
Where you see this manifest itself most clearly in organizations is through leadership that is always asking people – do you feel so confident in this decision that you’d put a substantial portion of your own money into it? What could go wrong? What will clients say if it does go wrong? What steps are we taking to avoid the bad outcomes?
You have to take risk, don’t get me wrong, but you’d better know what that risk is. Maybe it goes without saying, but aligning incentives is critical to fostering that kind of culture. I think great firms make clients the center of everything they do – both in terms of client service and investing.
Among institutional investors, I think there is a clear trend to insourcing and specialization. And that is working its way down to smaller institutions too. In effect, institutional investors are getting more sophisticated. That is a long-term trend. That requires better and smarter marketing content for investment firms. You have to help those specialists learn, analyze and make better decisions.
On the HNW side, I alluded to the major change I see already. The baby boomers are a concentrated pocket of wealth with rapidly changing needs. The youngest boomers are now 60 and the older boomers are closing in on 80. A person’s needs, goals, risk tolerance and desired investment attributes change a lot in that part of their life. I think investment firms are behind the eight ball in recognizing how seismic that shift is and responding to it creatively.
Further, wealth is being transitioned from boomers to Gen Z and millennial investors with a differing set of beliefs and views – but that’s a whole issue unto itself.
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