Compatriot Capital Expands M-F Presence with JLB Investment

By Barbra Murray, Contributing Editor

Paul Rowsey

Compatriot Capital Inc. has taken a significant step in its 10-year business plan through a new deal with national multi-family developer JLB Partners L.L.C. If all goes as planned, Compatriot will make a significant capital investment in JLB, thereby becoming a minority shareholder in the company.

Some of the best deals are made outside the boardroom. The head honchos at Compatriot and JLB became acquainted through friends and the rest, as they say, is history. “They really weren’t looking for capital but we met and we started talking, and our investment objectives [were similar] and there was a lot of strategic alignment with what they wanted to do and it really fit in with our plans for the future,” Paul E. Rowsey, president and CEO of Compatriot, told CPE.

What JLB wants to do–and is doing–is respond to the growing demand for apartments. Even relatively lackluster gains in employment in the second quarter did not dampen the market. As per a report by Marcus & Millichap Real Estate Investment Services, echo boomers’ formation of new households, the continued shift away from homeownership and increased immigration levels kept demand at a high. The quarter ended with a vacancy rate of just 4.7 percent, marking a year-over-year decline of 120 basis points.

While the need for rental accommodations of all types is strong across the country, JLB doesn’t just develop any multi-family product in any location. The company builds luxury apartment properties in core U.S. markets, including such locales as Atlanta, Dallas, Phoenix and Washington, D.C.  With roughly $1 billion in projects totaling 5,100 residences currently in the development phase, JLB is among the developers at the forefront of the steaming hot multi-family market. And there’s more to come. JLB has an additional 6,000 units in its pipeline, accounting for a total development cost of approximately $1.1 billion. Not bad for a five-year-old company.

Of course, JLB is hardly alone in the market. Avalon Bay had approximately $1.5 billion of development underway at the close of 2011 and Camden Properties had a project pipeline of roughly $500 million. Despite the big numbers, Compatriot is not living in fear of a market glut.

“I’ve been in this business a long time so there’s always worry about overdevelopment, especially in certain markets, so we tend to look at each market individually and focus our investments with companies that are very well capitalized and have the discipline and financial ability to back down when market conditions indicate overdevelopment’s on its way,” Rowsey explained. “We like the positions that JLB has in the market and their competitive advantage in terms of cost really bode well for their pipeline. We know that there are always times when you need to back down so we just follow the markets very closely and especially pay particular attention to the submarkets.”

Adding to the comfort level, positive market fundamentals appear to be in place for the long term. As noted in the Marcus & Millichap report, approximately 2.4 million residents between 20- and 34-years old–the prime renter ages–will enter the apartment market over the next five years. Between the creation of new households and rising immigration levels, demand, according to the report, “will continue to significantly surpass new construction of rental units.”

The JLB arrangement will mark Compatriot’s second move in the big plan that its parent company, Sammons Enterprises Inc., announced in June 2011, a plan outlining the development of a $1 billion real estate business over the next 10 years through entity-level investments in real estate operating concerns. Compatriot kicked off the endeavor last December when it acquired a 50 percent stake in luxury apartment property developer and manager Village Green. Compatriot committed to providing $50 million of equity for Village Green’s construction and acquisition of roughly $250 million in apartment properties within a 24- to 36-month period.

However, Compatriot has set its sights far beyond the multi-family market. The company has also made investments in seniors housing businesses and a corporate build-to-suit development company. “We’re really trying to build out a diversified investment platform, covering all the major segments,” Rowsey noted.

Compatriot is certainly being highly selective in its investment activities, taking more than just real estate market potential into consideration. “What we’re looking for is very talented and seasoned, tenured management teams,” he said. “For us, it’s really about the people and their ability to perpetuate and grow their business platforms, and what we want to do is be strategic business partners with them and help them do that. JLB and their team really just fell right into that strategy.”