After 28 years in the real estate development business, Browning Investments Inc. is inviting investors to take a cut of some of its deals.
The locally based firm plans to launch a private investment fund to buy properties, mostly central Indiana industrial buildings.
Browning officials are working on raising $10 million in equity for a fund that will leverage debt to acquire $30 million to $40 million in properties. They hope the fund will be the first of several.
The company decided to create a way for individuals to participate in its deals after receiving several requests over the years from investors interested in partnering on specific transactions, said Dennis Dye, Browning's executive vice president of development and investments.
"We've never had a vehicle to do that," Dye said.
To manage the fund, Browning in August hired Matt Carlstedt as director of investments. Carlstedt previously worked on the investment sales team at the local office of Los Angeles-based CB Richard Ellis, alongside John Merrill and Gary Woodworth. Andy Banister joined Merrill and Woodworth following Carlstedt's departure.
In his previous job, Carlstedt saw firsthand that the market is flush with money and investors chasing real estate deals. That has made buying properties at prices that can bring attractive yields more difficult. However, Carlstedt and Dye said Browning's fund will go after smaller or older industrial properties that might be off the radar screen of institutional investors.
Properties Browning plans to target for the fund include some of its own buildings that it otherwise might have held onto or sold to someone else. The fund also plans to acquire real estate it believes Browning can add value to by bringing in new tenants or overhauling the property, Dye said.
As fund manager, Carlstedt is beginning to solicit potential investors and to spread the word among real estate brokers what he's interested in buying. Browning Investments plans to chip in at least $1 million. The remainder likely will come primarily from wealthy investors.
Carlstedt and Dye hope the fund will make its first acquisition late this year or early in 2006. When the portfolio is complete, it will likely have four or five properties in it, they said.
Such private-equity real estate funds are not uncommon, especially in larger markets, said David Funke, principal of Providence Partners Inc., a locally based real estate investment and services company. Among other services, Providence helps connect investors with its sister development company, Street Corner Group. In those cases, investors are usually putting money in for a single development project, rather than a portfolio.
Wealthy investors often prefer putting money into single properties or portfolio funds over investing in publicly traded real estate trusts, because returns on the private investments aren't influenced by the whims of Wall Street, Funke said. Private funds also allow people to invest in local real estate markets they know.
"In this kind of private equity investing, you don't have to pick up the Wall Street Journal to understand how it's doing," Funke said. "It's all about whether or not the developer is good at what they're doing with real estate and the investment."
Investors for private real estate funds are often found through accountants, money managers and old-fashioned networking by fund managers, Funke said.
At Fifth Third Bank of Indiana, planners are more likely to recommend shares of publicly traded REITs, or rental properties, to diversify clients' real estate holdings, said Brial Wissman, vice president and managing director of the bank's private client group.
Regardless of the vehicle, though, Wissman and Funke agree investors are flocking to real estate as an alternative to traditional stocks.
"Everybody wants to know about real estate," Wissman said.