Why the Ashcroft Capital Value-Add Fund Is a Smart Choice for Savvy Investors

The Ashcroft Capital Value-Add Fund is a new fund centered on capital preservation and risk mitigation. Focusing on five to seven large-scale, value-add, Class B multi-family properties throughout the south, the fund will rehabilitate these underperforming properties in order to maximize returns.

Evan Polaski, investor relations manager at Ashcroft Capital, spoke to Commercial Observer about why the fund is so desirable for investors.

Commercial Observer: Talk about some of the key aspects of the Ashcroft Capital Value-Add Fund that will have strong appeal for investors.

Evan Polaski: This fund continues Ashcroft’s mission, which has always been capital preservation. We’ve always gone into transactions with conservative underwriting and an intentional business plan on assets that can create a very strong, risk-adjusted return.

With the fund, we’re creating a diversified pool of assets that can commingle funds, so the investor’s returns are no longer tied to any specific asset, but rather the overall performance of the portfolio. This reduces the risk of those returns while maintaining comparable levels of returns to doing one-off deals.

The fund has multiple value-add assets. What exactly will that consist of?

We anticipate buying five to seven assets within the Ashcroft Value-Add Fund.  Ashcroft’s traditional business strategy is buying large-scale, value-add, Class B multi-family properties in high-growth major metros in the Southeast and Dallas/Fort-Worth.

We’re looking for areas where there is a large population growth and assets that would benefit from updated renovations. Our renovations to help bring somewhat outdated properties to current design standards, which, in turn, allows us to raise the rents. Those rents then flow through into higher income and, therefore, a higher sale price when we exit the deal*.

Why is that strategy advantageous to buying newer construction?

It’s a higher return*. We’re able to buy older units at a discount, because these are dated units that require capital to get them up to today’s standards, resulting in outsized returns. Even after renovations, we are still typically at a lower rent point than a new construction asset. A more competitive rent rate allows for a bigger pool of potential tenants leading to higher occupancy rates.

Are there any other advantages to investing in this fund that potential investors should understand?

The biggest one, and the most common question I receive, is understanding that this is a closed-end fund. This means we’re raising a set amount of equity, and we’re going to buy a set portfolio. We have a target end date, and we’re not recycling capital. When we start selling off assets from the portfolio, those proceeds are distributed back to the investor. And once that last asset is sold, the fund has been fully wound down.

Talk about the markets you’ve chosen for this.

We’re targeting Dallas/Fort-Worth, Jacksonville, Orlando, Tampa, Atlanta, Raleigh and Charlotte. We’re looking for major metros where there is diverse employment, strong population growth, and strong rent growth and projected future rent growth.

Those strong rent projections benefit us and our buyers since we’re selling a fully renovated property. The buyer’s upside is going to be driven through year-over-year rent growth, so being in markets where rents are growing at 5 to 6% per year, versus 1 to 2%, they’re going to see a lot more future value in the asset and, therefore, typically pay a higher price.

What makes Ashcroft Capital different than other multifamily investment firms?

The biggest differentiator for us is our track record. We have sold close to 12 deals and have great historic returns on those assets*. But, beyond that, that track record leads into our acquisition pipeline, and that leads us to getting more deals off-market and seeing more deals in general. That allows us to cherry-pick the deals best aligned with our investment thesis.

Another differentiator is our best-in-class, affiliated property and construction management teams, Birchstone Residential and Birchstone Construction. These teams create significant opportunity to control the entire life cycle of the deal and prioritize the assets in the fund, since Ashcroft is the only client of these affiliates.

What are some of the important factors that first-time real estate investors should consider before investing in this?

Making sure you’re investing with somebody you trust, and who is willing to take the time to educate you and be communicative with you. First-time and experienced investors should ask for references from existing investors, and make sure they understand the sponsor, their track record and their business plan. Most of these deals have limited voting rights or liquidity, so you need to do the due diligence on the front-end.

What are the minimum requirements for investing in the fund?

We can only accept accredited investors as defined by the SEC, and our minimum capital investment is $25,000.

How will the distributions work?

The distributions are anticipated to be paid out monthly, but they will be based on true operations. Those could vary, particularly in a downside scenario. We either mail checks or we use an investor portal, where the investor could set up an [automated clearing house] to have their distribution direct-deposited back into their account.

What will the life of the fund be?

We are anticipating a five to seven-year life.

To sum up, what aspect of this fund has you most excited about its prospects?

For me, it’s the diversification it provides and, therefore, the reduced risk. Ashcroft has done very well on the one-off deals we have exited and continued to value-add plan. and we anticipate similar levels of return for the fund overall. And, beyond that, the business plan has the ability to generate strong returns, even in a softening economy, due to the value-add plan.

*The past performance of previous investments cannot be relied upon as an indicator of the partnership’s future performance or success. Ashcroft Capital is not an investment adviser or a broker-dealer and is not registered with the U.S. Securities and Exchange Commission. The information presented herein should not be used as the sole basis of any investment decisions, nor is it intended to be used as advice with respect to the advisability of investing in, purchasing or selling securities, nor should it be construed as advice designed to meet the investment needs of any particular person or entity or any specific investment situation. Nothing herein constitutes legal, accounting or tax advice or individually tailored investment advice.