Barings and Foulger Pratt Acquire N.C. Build-To-Rent Community for $50M

The transaction — near Raleigh, N.C. — marks Barings’ entrance into the BTR market 

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A joint venture between Barings and Foulger Pratt has acquired a 172-unit build-to-rent (BTR) community in Wendell, N.C., for around $50 million, Commercial Observer can first report. 

The transaction marks Baring’s BTR debut, and brings Foulger Pratt’s BTR portfolio to 700 homes — or $250 million in investment— across North Carolina and Maryland. 

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When delivered, the community, currently under development, will consist of 89 townhomes and 83 single-family homes on 39 acres just east of Raleigh, N.C. Leasing is expected to begin in the first half of 2024.

“At Foulger Pratt, we’ve been pursuing the BTR strategy for the last few years because of the really compelling demographics that are driving both growth and demand in this space, as well as the economics of the projects — which made a lot of sense as some of the more traditional multifamily development metrics were becoming challenged,” Cameron Pratt, CEO and managing partner of Foulger Pratt, told CO. “We have a portfolio of 700 units across five projects in the mid-Atlantic now.” 

As Foulger Pratt became increasingly active in the BTR investment space, the firm was introduced to several different equity investors that were also focused on BTR. Enter, Barings. “We’re super excited about our first transaction together — and it’s hopefully the first of many,” Pratt said.

Barings has been focusing on the single-family rental space for the past couple of years and also looking at BTR as a component of that focus, Joe Gorin, Barings’ head of U.S. real estate equity, said. With home affordability at its lowest point since 1984, “the only way to work our way out of this affordability issue is to build,” Gorin said. “We also look at the return profile, and there’s a great opportunity to provide housing through BTR development in the right locations. 

“Seeing as BTR is in the early stages from an institutional investment perspective, we believe we can achieve a higher risk-return premium in the BTR space, as long as we’re focused on the right criteria and metrics,” he continued. “We’re very focused and stringent on the criteria that we evaluate for BTR, but when we find the right opportunity, we want to buy it. We’re looking to partner with firms that have a reputation and regional expertise in the space, and Foulger Pratt is at the very top tier of the type of groups that we would want to partner with.”  

One of Foulger Pratt’s recent strategies has been to develop relationships with homebuilders, which was the impetus behind the joint venture’s first deal. 

Last year, as interest rates started to rise and home sales dipped, several homebuilders had projects underway that they needed to move forward while simultaneously facing uncertainty around future trends in home sales.

“We’ve been able to leverage the relationships that we’ve built with those homebuilders to come in and create a great win-win scenario for the homebuilders and for Foulger Pratt,” Pratt said. “We’ve been able to buy full communities from them, where they had already put in all the horizontal infrastructure, and were getting ready to go vertical. We were able to buy the whole community from them upon completion, which gave the homebuilders a ton of certainty on their exit, and also gave us access to projects that were already a couple of years down the road in terms of entitlement and design.”

The homebuilders often had tight timelines, which Foulger Pratt — and now Barings — has been able to meet. 

“Barings recognized the opportunity and jumped in early with us as a collaborative partner, and we’re continuing to work with these homebuilders now on new opportunities,” Pratt said. “I think when the homebuilders saw that they had partners that were willing to come in, recognize the opportunity and transact quickly, that’s a real opportunity for them to have execution certainty going forward. So, our ability to close on these kinds of transactions with these homebuilders is yielding significantly more opportunity for us going forward, and we’re really excited about the momentum we have.” 

When it came to the Wendell, N.C. acquisition, the emerging submarket was an attractive investment opportunity for the joint venture. 

“We anticipate strong job, population and household growth in this emerging submarket and believe this property will be well positioned to offer an affordable rent alternative, a high quality of life, as well as easy access to key employment centers and top-tier universities,” Kevin Miller, Barings’ head of real estate acquisitions, Eastern U.S., said in a statement.

Foulger Pratt is already very active in the area, having closed four transactions in the region in the past 120 days alone, Pratt said. Barings, which has a $12.5 billion U.S. equity platform, has a national reach. 

“We tend to like markets where we’re seeing outsized population growth, and movement to those markets from a skilled workforce,” Gorin said. “Tapping into the affordability issue, we also see highly skilled workers moving into new areas with a 20- to 30-minute commute into major urban centers or job nodes. They may not be able to afford a house but they want all the amenities of a house in BTR communities where you’ve got clubhouses and pools, so it’s a quality of life question. So, while we want to be in markets where we’re seeing outsized population growth of a skilled workforce, we’re also very micro in our approach. We look at every deal by itself, because there’s a lot of these different nodes throughout the country.” 

As the year draws to a close, Barings is remaining selective in the deals it pursues. 

“We’ve got a scorecard for BTR, and if we’re not checking all the boxes, we’re not going to invest,” Gorin said. “So, I would say between now and the end of the year, it’s going to be slow. But we do see more activity ramping up in 2024 and 2025.” 

Foulger Pratt is currently pursuing several other acquisitions. “None of them will close before the end of the year, but we expect those to bear fruit in 2024,” Pratt said.

For now, “We’re thrilled with the way our teams interacted on this transaction, and how we’re able to collaboratively get the deal done on a pretty tight timeline,” Pratt said. “We’re really looking forward to growing our relationship with Barings.”

Cathy Cunningham can be reached at: ccunningham@commercialobserver.com