SAN FRANCISCO, Jan. 19, 2023 /PRNewswire/ — Hamilton Zanze (HZ) reported a groundbreaking year in 2022 with new leadership roles and team expansion, the launch of a discretionary fund, robust acquisition activity, strong portfolio performance and the first steps toward a new investment strategy. The firm is well positioned for strategic growth in 2023.
In early-2022, HZ announced a series of important leadership moves, positioning it for the next stage of growth. After leading the firm’s investment efforts for more than a decade, President Kurt Houtkooper assumed the title of CEO from Founding Partner Mark Hamilton. The firm also welcomed six new shareholding partners from within its leadership ranks, promoted David Nelson to Chief Investment Officer and brought on Peter Casey as Managing Director of Capital Markets.
HZ remained strategically active in a cautious market and purchased 10 apartment properties for $800 million, sold 11 others for $825 million, and refinanced four properties generating approximately $75 million in proceeds for its partners and ongoing property operations.
The firm achieved its largest capital raise ever last year, with $441 million in equity for HZ-sponsored transactions. This would rank HZ in the top 10 (#7) in DST/TIC market equity, according to data reported by Mountain Dell Consulting for November.
“While many investment firms spent 2022 on the sidelines, concerned about their floating-rate debt and asset viability, we remained active in pursuit of new properties and continued to take a thoughtful, conservative and selective approach with transaction activity,” reported Houtkooper.
HZ recapitalized two properties, moving from institutional partners to private capital. It purchased assets with loan assumptions, taking advantage of cap rate expansion and reaping the benefit of low interest rates. The firm continued to focus on growing markets with strong job expansion, such as Nashville and Colorado Springs.
Despite a volatile market, HZ’s portfolio remains healthy and financially resilient. The historic rent growth of the last 18 months is now moderating, yet there is still significant loss to lease that can be harvested in many markets, which will allow for Net Operating Income (NOI) growth within the portfolio, albeit at a more moderate rate.
HZ’s same-store revenues grew 8% in 2022, as did NOI growth. In 2023, the firm is budgeting 2-5% top line revenue growth, 8-10% operating expense growth, and approximately 3% NOI growth. While the firm anticipates revenues to grow more slowly in 2023, the projections are still healthy by historic standards.
HZ’s financial strategy has proven invaluable, as the firm is historically two to three years ahead of loan maturities, with fixed-rate financing on the private capital portfolio providing an effective defensive hedge against rate hikes and market unpredictability. At the close of Q3, the Debt Service Coverage Ratio (DSCR) of the portfolio was 2.58x.
Another important milestone in 2022 was the expansion of HZ’s investment offerings to include its first discretionary general partner fund (HZ GP Fund I), enabling the firm to invest in unique deal opportunities with more agility. The $52 million fund has invested into three transactions and is currently 33% deployed. HZ anticipates four to eight additional deals in 2023, depending on market conditions, and will begin raising HZ GP Fund II in 2024.
In 2023, HZ will transition to a diversified investment model with plans to launch a Perpetual Investment Fund by mid-year. The fund will continue to purchase and manage real estate investments throughout the country, affording investors better access to a diversified real estate portfolio, more consistent distributions, improved liquidity, and simpler transferability of ownership shares.
In tandem with the new fund model, HZ will continue to actively manage its single-asset syndication business and acquire assets on a one-off basis through joint ventures, separate accounts, and Delaware Statutory Trusts (DSTs). The DSTs will accommodate 1031 exchange investors into individual assets with an additional option to convert their investment into the Perpetual Fund.
HZ’s diversified portfolio and conservative approach to the capital stack have helped it weather market volatility and regional risk factors. It is also helpful that most of the single-asset loans in the portfolio have fixed-rate 10-year financing, so they have not been subject to interest rate volatility. Additionally, HZ has been proactive in replacing debt that is maturing and does not have much exposure to near term-loan maturities.
Hamilton Zanze is well positioned in 2023 to take advantage of market disruptions with ample capital ready to deploy as attractive investment opportunities arise via the firm’s extensive industry relationships across the U.S.
Hamilton Zanze (HZ) is a private, San Francisco-based real estate investment company that owns and operates apartment communities. Since its founding in 2001, Hamilton Zanze has acquired over $5.9 billion in multifamily assets primarily in the Western, Southwestern and Eastern U.S. The company currently owns and operates 132 properties (22,035 units) across 30 markets. For additional information, visit www.hamiltonzanze.com.
SOURCE Hamilton Zanze