5. The Investment Bank

Company: CB Richard Ellis Investors

With $33.7 billion in assets under management, it may come as a surprise that Los Angeles-based global real estate investment firm CB Richard Ellis (CBRE) Investors is relatively new to the multifamily scene. While the company had scattered apartment holdings across its portfolio, it wasn’t until a March 2008 purchase of a controlling interest in Atlanta-based Wood Partners that CBRE Investors began a bona fide market move into multifamily. Since then, the firm has been on an acquisition tear, picking up stabilized apartment communities, raw land for development, and projects at various stages in between—all on behalf of Wood Partners and the firm’s combined $2.1 billion Strategic Partners U.S. 5 and Strategic Partners U.S. Opportunity 5 equity funds.

“CBRE Investors is relatively new to multifamily,” says Steve Zaleski, who left the head of acquisitions post at Boston-based Berkshire Property Advisors in April 2008 to join CBRE as managing director of multifamily development and investment. “There were two interrelated things that have been necessary for us to operate successfully in the market: We had to establish our name as being a qualified multifamily buyer, and we had to convince sellers that we were serious about acquiring.”

Consummation of the Wood Partners deal (financial terms were undisclosed) likely took care of any remaining doubters in the market, and CBRE’s first-mover attitude towards the acquisition market after the onset of the recession further solidified the firm’s status in the buyer space. “We got in the game on the early side and were out underwriting in the fourth quarter of 2008 and really actively buying and making offers toward the first quarter of 2009, and I think that gave us some credibility in the market,” Zaleski says.

So too does CBRE’s consistent acquisition strategy over the past two years: The company invests in a wide variety of asset types, including stabilized and unstabilized properties or land suitable for development but remains focused on core and core-plus markets with some value-add interest depending on the strength of market and the opportunity. The company also looks for the bigger scores.

“We are not buying anything under 200 units, unless it is in a top urban infill market location like Los Angeles,” Zaleski says. “I’d say our sweet spot is $40 million and up for acquisitions, while the development deals we are working on are in the $30 million to $40 million range.”

Bucking that lower-end development acquisition trend was its $90 million acquisition of a stalled 379-unit luxury project at the Spectrum Business Center in San Diego, a Wood Partners deal that will likely be ready for occupancy in 2012.

While Zaleski admits competition in the buyer’s market has pressured pricing, he’s nonetheless unfazed by cap rate compression, particularly given the softness of underlying fundamentals. “We talk a lot about cap rate compression into the 5 percents and 4 percents, but you’ve got to look at the income that you are capping versus historical rents,” he says, although with the caveat that CBRE is looking for a straight operating yield and arbitrage play independent of available financing.

“You need to underwrite on today’s rents and not some trended rents in the future, even given the prospects for rent improvements. We look at the unleveraged yield on every deal we do. You cannot let financing drive a deal. Otherwise you are kidding yourself.”