Wealth & Finance International - February 2017

Wealth & Finance International 38 Value Investors Find Success in ‘Sub-Institutional’ Real Estate ormed in 2013 after the three founding partners spun off from Canyon Capital Realty Advisors, Tryperion Partners is a real estate private equity firm that invests in value-add deals through closed-end funds on behalf of mostly high net worth and foundation clients. Tryperion adheres to the value investing approach, focusing on pockets of inefficiencies in all major property types across the United States. “Since 2013, we’ve closed two “value-add” closed-end funds: Tryperion Real Estate Fund I (TREF I) - $50 million in 2013; Tryperion Real Estate Fund II (TREF II) - $51 million in 2015. We’ve fully deployed TREF I and are in the process of harvesting those assets. We’ve deployed 86% of TREF II and are going to be raising a third fund soon. “Our funds are advantaged in that they’re undersized, which allows us to invest in “sub-institutional” deals – deals that fall below the radar of the behemoth funds, but are too big for most high net worth investors to capitalise. Our typical equity investment is $3-10 million, with average deal sizes of $10-40 million. “Historically, we’ve invested mostly in secondary markets where we have been able to buy at high cap rates and utilise cheap debt to maximise our cash yield and minimise our dependence on residual value. Because we always look at our downside first, we’re big believers in cash flowing deals, or deals that are on a fast track to healthy interim cash flow. We believe the current low-interest rate environment has helped anybody seeking to capitalise on this strategy. “Although only a portion of our TREF I and TREF II portfolios have been fully realised, our returns since inception based on fair market values is 20.1% net to our investors (as of Sept 30, 2016). We’re very proud of the fact that, in addition to gaining many new investors in TREF II, all the investors in TREF I “re-upped” into TREF II. We anticipate similar retention and growth in our next fund, however, we intend to cap the fund at an amount similar to our first two funds because we enjoy investing in the more fragmented “sub-institutional” deal set.” When we asked Jeffrey about his particular role within the business, we discovered a broad and varied position. “When I’m not on the fund- raising trail or interfacing with our existing investors, I work with our acquisitions director on sourcing and executing new investments. And along with my partners, I lead the general strategy of the firm. So on any given day I could be underwriting a specific deal, trying to understand changing market dynamics in order to hone our investment strategy, or playing golf with an investor. No day is the same, which is one of the many reasons I love my job. “Our team is relatively small, so it’s a true team effort. We’ve established a culture of openness and respect which encourages everybody, no matter how junior, to voice their opinions. It’s not enough to hire the best and the brightest – listening to and learning from what they have to say is equally important.” Looking to the future of the business, Jeffrey was optimistic despite a current drought in market opportunities. “We’ve been upfront to our investors the last year or so about the relative lack of intriguing opportu- nities in the marketplace. That’s been a challenge, but at the same time it’s not a reason to lose our patience. Our investors understand that we’ll never do deals just for the sake of deploying capital – that’s not who we are and it’s not who we want to become. We’re very much concerned about the quality of each deal in our portfolio. “Our investors appreciate our “value” approach and the fact that we’re “under the radar”, where we’re able to benefit from a more fragmented deal set. They also appreciate our open lines of communication and robust reporting that we provide quarterly. Our transparency has con- tributed greatly to building trust on both sides.” And of the real estate industry as a whole? “Real estate has seen a tremendous rebound the last 7 years. Generally speaking, it’s gone from markedly undervalued in the immediate aftermath of the Great Reces- sion, to seemingly fairly-priced now. Some markets I’d even say are overheated based on current fundamentals, particularly some primary markets where properties tend to trade for very low cap rates. “The easy money has been made, but there are still opportunities for investors with strong relationships and good localised market knowledge to source deals that, for example, have languished due to mismanage- ment, or which might sell at a price below the intrinsic value due to an inefficient sale process.” Company: Tryperion Partners Name: Jeffrey Karsh Email: [email protected] Web Address: www.tryperion.com Address: 10990 Wilshire Blvd, #1060, Los Angeles, CA 90024 Telephone: + 1 (310) 421-1030 Tryperion Partners is a real estate private equity firm, based in Los Angeles, focusing on the US property markets. We spoke with co-founding partner, Jeffrey Karsh, about the ongoing successes of the business. F 1702WF25