Cortland Closes $1.5B Value-Add Multifamily Fund

Jason Kern, Cortland’s president of investment management, told CO that his firm benefited from a new class of investors who sought to park capital with capital markets experts specializing in a single asset class. 

“Overall, there’s been a trend in recent years for institutional investors investing into more diversified allocator-type funds, who do multiple geographies and property types, but there’s been a general trend on the margin to go to the vertically integrated operator, or manager, like Cortland,” said Kern. “[They’re] avoiding fees, cutting out the middleman, and going straight to who they see as the top expert in a particular property type and strategy.” 

Cortland invests almost exclusively in value-add multifamily products in the Sun Belt and Mountain West. The firm has more than 2,500 employees who handle not just investment and debt, but also property management and building operations.  

“Cortland is the extreme of ‘an inch wide and mile deep’ in terms of our focus on market-rate apartment buildings that we acquire, renovate, manage and then eventually dispose of,” Kern explained. “We do one thing and do it extremely well with a degree of focus and attention that you rarely find in the real estate investment management world.”  

Just over half of the $1.5 billion closed by Cortland came from repeat investors from Fund V, according to Kern. 

He noted that while many investors upsized their commitments this time around, roughly one-quarter of the new capital came from foreign investors in Europe and Asia, and half from new investors. Approximately 80 percent of investors in the fund were institutional, while 20 percent were high-net-worth individuals or family offices.  

“We were very adamant about expanding,” Kern said. “You can’t go from a $650 million fund to a $1.5 billion fund without approaching new investors, and we had a strategic goal to go to new investors abroad and diversify our investor base.”

Fund VI closed $840 million in commitments in February 2023, within the first 12 months of fundraising, and reached $1.45 billion in commitments by February of this year. However, Cortland says it asked several limited partners to hold off closing for a few additional months in order to give new investors from abroad time to do their due diligence, which led to the closing in August of this year, rather than March. 

“We asked for this extra time, not a lot of extra dollars, but these were important strategic relationships for us to have, that capital out of Asia and Europe, for diversification and for building on those foreign relationships,” Kern said. 

He added that even though Cortland secured that $840 million in equity commitments by early 2023, the firm deliberately refused to deploy the value-add capital during the first three quarters of last year due to the concomitant rise in interest rates and cap rates, as well as the difficulty in determining what an appropriate bid-ask spread would be under a low transaction, high-supply environment. 

“Timing is really important in closed-end funds, as far as when are you raising that capital, when are you investing it and when are you exiting those assets, and the timing right now feels like a really great vintage for a strategy like this,” he said.  

Steven DeFrancis, Cortland’s founder and CEO, said in a statement that the new fund “underscores institutional capital’s strengthening demand for multifamily real estate” and the confidence investors have in Cortland’s financial stewardship. 

 “We are grateful for the trust our investment partners have placed in us and look forward to the opportunity to continue to deliver positive results for them,” said DeFrancis. 

Brian Pascus can be reached at bpascus@commercialobserver.com