Fairway America’s CEO on Upcoming $1B Fund, Investment Partnerships

The global coronavirus outbreak has impacted real estate markets to varying degrees. While some real estate investors are pausing until the smoke clears, others are preparing to take advantage of new opportunities.

Matthew Burk, founder & CEO of Fairway America, talks about the role of partnerships in the company’s middle-market investment strategy and his firm’s next $1 billion venture.

Tell us about Fairway America’s investment strategy. What are the benefits of investing in middle markets?

Burk: Our basic strategy is to partner with high-caliber, disciplined real estate investment professionals—sponsors, syndicators and fund managers⁠—to acquire quality real estate-based assets at prices below their intrinsic value. The middle market is vast and fragmented, which provides both opportunities and challenges, but the benefits far outweigh the costs. The fragmentation and inefficiency of the segment gives rise to what I believe are greater opportunities with controllable risks.

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What are the challenges of investing in middle markets?

Burk: The fragmentation of the market is the hardest part. It takes a long time to develop and cultivate relationships with top-caliber real estate people in markets all over the country. Obviously, the impact of COVID-19 will present many challenges unique to that situation, but I don’t have those answers at this early juncture. I’m pleased that real estate partners can buy a property for less than its intrinsic value in a market segment that is traditionally harder for large institutional players to enter due to size.

Can you tell us about a recent deal that aligns with this approach?

Burk: We bought an ugly and vacant industrial property with several acres of excess land in a strong industrial market for somewhere around $20 per square foot. The day after closing we executed a five-year lease for our excess land with Amazon, which has a distribution facility next door, for around 200 parking spaces for their vans. This lease alone provides us with a nearly 12 percent cap rate and we still have the entire building and immediately surrounding land available for lease and are in negotiations with a number of parties that we believe will nearly double the income once complete.

Which U.S. middle markets currently offer good opportunities? 

Burk: Clearly there are certain markets that are more desirable than others. Population and job growth are always positives, as are multiple other well-known factors. But for us, we are initially more interested in partnering with the right people with the right mindset and approach to real estate and worrying about the dynamics of the market later. This doesn’t mean we will invest anywhere. It does mean that we believe good deals exist in basically every market, because situations force people’s hands no matter where they live, work or conduct business from. Great real estate people know how to find those opportunities.

What are your long-term expectations for middle-market investment?

Burk: We believe the middle market is huge, vast and here to stay. It just takes someone to figure out how to deal with the nuances and challenges of scaling in that sector, which is hard to do. Choosing the right operating partner is key.

Fairway America invests in various property types. Which asset type are you focused on during this crisis? 

Burk: Everyone has their opinion on that. The traditional answers may or may not apply to an entirely new market reality that the modern world has never experienced. So, I am not going to hazard a guess here or give away our preferences as the opportunities become available.

Which property sector will be the most impacted by COVID-19? What measures should investors take?

Burk: We are already seeing hospitality get hammered. Retail is also likely to be heavily affected. Subsectors of other asset classes will suffer at varying degrees, but again, I don’t like speculating on a situation that neither I nor anyone else has never seen before.

What are the key points of Fairway America’s CRE strategy for the remainder of 2020?

Burk: Play great defense and go on offense simultaneously. Defensively, actively mitigate possible damage to existing assets in the portfolio and maximize outcomes for our current funds and syndications. Offensively, given the upheaval caused by COVID-19, we are actively preparing to launch a $1 billion middle-market real estate opportunity fund for institutional investors. The fund will aim to take advantage of both our broad and deep relationships with highly capable regional partners and what I think are going to be some of the best opportunities we’ve seen in more than a decade—and maybe ever—to acquire middle-market real estate-based assets.

What are your company’s long-term goals?

Burk: Our long-term goal is to be the number one middle-market real estate fund manager in the U.S.

What are the best solutions to mitigate loss and risk in these trying times?

Burk: The current vintages are the current vintages, so to a large degree the bed is already made on what you own. After that, work the assets actively at every angle. Be realistic, be reasonable in your dealings with others and work like crazy. Going forward, buy great assets at the right price in partnership with outstanding people. If you did that all along, you are likely to come out better than most others.

How will CRE investment be impacted by the COVID-19 crisis in the mid and long term?

Burk: It is hard to say how hard and deep CRE gets hit, but in my opinion, it will likely be a lot harder than in other downturns. This will give rise to very attractive buying opportunities in due time.