Arbor, ArborCrowd Team Up to Finance $50M Multifamily Value-Add Portfolio


Arbor Commercial Mortgage and its crowdfunding platform ArborCrowd have joined forces to finance Tzadik Management’s 707-unit multifamily portfolio in Sioux Falls, S.D., Commercial Observer has learned.

The deal has a total capitalization of $50.1 million. Arbor provided a $37.5 million loan in the transaction, ArborCrowd is seeking to raise $3.2 million from investors and Tzadik Management is providing the remainder in equity. ArborCrowd’s offering launches today.

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The Sioux Falls Multifamily Portfolio is a collection of 18 Class-B apartment communities in Sioux Falls. Affiliates of Tzadik Management acquired the portfolio—which accounts for 4 percent of the Sioux Falls market—in October 2018.  

Investor appetite for workforce housing is strong and only continues to grow, Adam Kaufman, the co-founder of ArborCrowd, told CO, and Sioux Falls presents a compelling investment opportunity.

“In today’s market we’re looking for opportunity, and opportunity is hard to come by,” Kaufman said. “We’ve been very selective in our investments. What attracted us to Sioux Falls and this transaction was the market itself and the fact that the opportunity was ripe and relatively untouched. Sioux Falls in general has seen tremendous population growth and it has strong employment that has been insulated on a macroeconomic level from the downturn in 2008. All in all we think it’s a great opportunity.”

The Sioux Falls multifamily market has seen a number of class-A developments come online in recent years, but there is a shortage of quality, professionally-run workforce housing, Kaufman added.  

The assets were managed independently previously, but will now be managed by Tzadik under a single managerial umbrella. The owner will soon undertake a $5.2 million capital improvement plan at the properties to upgrade units, common areas and public spaces.

“Significant renovations coupled with institutional property management are expected to propel the portfolio’s rent growth, while it is still anticipated to present a significant discount compared to Class-A rents in the area,” Kaufman said.

Arbor and Tzadik have transacted in the past, and when the owner required an additional source of equity in the Sioux Falls deal, ArborCrowd’s platform was a natural fit.

“One of the great benefits we have in being part of the Arbor family of companies is that we can leverage our relationships,” Kaufman said. “We jumped into the conversation; the transaction was right in our wheelhouse. At the end of the day we’re looking to build a long-term business with a long-term investor base so we don’t feel the need to rush into a deal to show growth or momentum when we’re going to be around for a long time.”

The offering marks ArborCrowd’s eighth transaction since its inception in 2016. The investment has a targeted internal rate of return of 12 to 14 percent over a three- to five-year hold period.