Building on the success of their first real estate-themed fund, Florida-based Transcendent Investments Management is rolling out a second vehicle—this one focused entirely on distressed residential properties.
Transcendent founder and managing director Jordan Kavana told FINalternatives that experience gained with the Transcendent MultiStrategy Fund I (40% of which was invested in distressed residential properties), a national platform of partners and a large investment in a customized technology solution to link that national network have combined to give his firm an advantage running a strategy he characterizes as labor intensive.
“It’s very much a fragmented strategy,” says Kavana, “buying, repositioning and selling residential assets around the country. Usually the investments are in small tranches and it’s a tedious process involving many steps, a heavy operational process…but the fact that we have been setting up this national platform for the last three years gives us the leg up over people who perhaps have a lot of capital to deploy without the patience to allocate it nationally.”
Kavana says to supervise such operations on a deal-by-deal basis you need “the right people with boots on the ground facilitated by technology which allows them to instantly compare public and private deal flow, in multiple markets at a time. You must know where to allocate and redeploy capital in a market where pricing is as stable as an EKG.”
The $50 million Transcendent MultiStrategy Fund launched in late 2008 and invested in physical properties, loans and liens. By contrast, the new fund is 100% real residential and multi-family assets. Kavana is aiming to raise $150 million for the new vehicle.
“We’re not targeting loans unless they are late-stage non-performing, which means we’ll be able to foreclose on [them] relatively quickly. We’re targeting real assets. One of the main reasons for that is because the model is a rapid-turnover model. In other words, our average hold period should be no greater than 120-150 days, so that we can effectively turn that capital a couple of times in a year.”
U.S. residential property values remain near their lowest levels in years, even as most other asset classes have recovered from their crisis lows. But Transcendent’s strategy is not dependent on this market improving—the company earns returns by “serving as a capital provider in the inefficient market for distressed properties.”