Core+ 
Value-Add
Blended Returns

The Opportunity and Approach 

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SIMCAP's investment strategy is designed to capitalize on unique opportunities within the multifamily real estate sector, specifically focusing on properties located in six key Midwestern markets: Cincinnati, Columbus, Indianapolis, Louisville, Lexington, and Knoxville. These Target Markets have been selected based on a comprehensive analysis of macro factors including job and population growth, housing supply shortfalls, and forecasted income growth rates. The affordability and quality of life in these regions further bolsters their appeal, offering attractive amenities for a broad rental base.  

 

Target Market selection is the starting point for uncovering assets that fit the fund’s niche, it then widens its search pool to include peripheral submarkets that ensconce the core six Target Markets. By dedicating research and resources towards these areas, a more consistent deal flow can be established, with a higher volume of fund-suited assets in need of operational expertise to maximize value extraction. As developers push outwards from the metro areas, data shows that the rental absorption rate for these Target Markets remains generally consistent within a 50-mile radius, indicative of a job market affected by housing supply issues. Simcap will identify multifamily assets that sit within this key radius, and whose operators have failed to make suitable upgrades to their tenant base and/or property. The current rental pricing disparity between these sub-markets and their parental metro area provides a window of opportunity for hands-on operators.

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SIMCAP believes the opportunity stretches further than those factors affected by multifamily demand drivers, with evidence of a debt maturity crisis also on the horizon. Many out-of-state operators that diversified into the referenced Target Markets over the past five years have struggled to realize the originally projected increases in gross income. Over-dependence on 3rd party property management, miscalculations at the time of acquisition, and the tightening of credit has curbed performance and increased expenses for many current operators. As operators are held accountable for underperformance, Simcap will be positioned to acquire these assets under more favorable terms and with a better roadmap for execution via The SIMCAP Cross-Class Strategy Fund. 

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Investment Strategy 

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Simcap’s investment strategy is based on the implementation of its honed investment methodology, seeking to blend Core+ and Value-Add return characteristics to maximize equity growth while protecting cash flow. The six Target Markets focus the strategy on areas where buying opportunities are likely to occur with a fast-developing rental base. The radius of opportunity extending 50 miles from all identified Target Markets is expected to uncover high-yield assets for investors, with a significant opportunity to extract value and leverage the operational efficiencies of SIMCAP Management Company - the property management arm of SIMCAP Holdings. SIMCAP’s regional office in Cincinnati, Oh serves as the hub for Target Market operations, protecting the partner’s commitment to hands-on management. 

 

SIMCAP intends to acquire select Class B & C properties that may range in acquisition value from $5 to $11 million per asset, with value addition at the heart of the approach. SIMCAP believes assets of this size offer the best potential for value extraction and will enable the team to leverage existing relationships with private sellers and brokers for access. Assets of this type are generally overlooked by larger institutional investors and/or larger funds posing as competitors. 

 

SIMCAP will focus on transactions where the team can materially impact value through repositioning or light-medium redevelopment. The improvement cost-to-return ratio is capped based on the market competition for comparably classed buildings. As an example, a C- property will only be improved up to the point that it reaches C+ status, but not enough that it may be considered viable as a B- property. SIMCAP believes that over-improvement invites undue risk and that stronger and more predictable returns are achieved by assets that are best in their respective class. The Manager and supporting asset management team will be highly engaged in all investment opportunities early in the due diligence process and will develop comprehensive improvement plans for each asset before formal offers are extended. Post-acquisition, the improvement plans will be overseen and supervised directly by the asset management team, and implemented in close collaboration with SIMCAP Management and top-tier service partners. The improvement progress of each asset will be continually monitored and cross-checked against the improvement plans for other assets held within the fund. As buildings become cashflow stabilized, additional buildings will be added to the fund, with a target ratio of 60/40 for Core+ and Value-Add for project engagement. The ratio of asset class (B or C) within the fund is a second-tier consideration, the speed to stabilization is more significant as it relates to optimizing fund performance.  

 

SIMCAP’s strategy is underpinned by its commitment to risk management, which stems from the management team’s background and testing of its current portfolio. Risk Management starts at the sourcing level, ensuring assets are acquired at prices reflective of the cost and time needed for improvement. SIMCAP utilizes sophisticated underwriting tools to stress test assets first individually and then together to derive key expectations for performance. The tools are based on established underwriting models and have been significantly adapted by SIMCAP to include machine learning functionality. Technology and the use of AI within SIMCAP is designed to extend capacity but is supplemental to the expertise and fundamental involvement of the team.