Amid high construction financing costs, developer Dan Kodsi is launching an equity investment fund for his Florida multifamily projects, including towers he plans in Aventura and Miami.
Participant Capital, a real estate investment firm founded and led by Kodsi, is launching a $250 million equity fund targeting multifamily developments in the Sun Belt, mostly in the Sunshine State. Participant Capital Sun Belt Multifamily Development Fund 1 will offer accredited investors an equity ownership position in Kodsi’s Royal Palm Companies’ projects, Bernard Wasserman, president of Participant, told The Real Deal.
“We expect them to be all Royal Palm Projects. … If we raise a crazy amount of money, and it’s more than what we can do with Royal Palm, we would consider” other projects, Wasserman said.
The fund comes as expensive construction financing, high labor and materials costs, and skyrocketing insurance premiums have prompted some developers to pause projects — unless they can get rescue capital from equity investments. The problem extends to South Florida, despite the region’s reputation as a booming real estate market that’s benefitted from an influx of out-of-staters that have pushed up rents.
But Kodsi and Wasserman countered that these issues aren’t the basis for the fund, arguing that interest rates have always fluctuated over time but the Sunshine State’s overall market outlook is bright.
“When you are in development, it’s a long-term business,” Kodsi said. “Long term, Florida development is still very desirable.”
“In so far as the need for equity, absolutely we see a change [as] banks are lending less than they were before the recent crisis,” Wasserman said. “But that is not what drives the attractiveness of this fund.”
The fund will target markets that have most benefited from population influx the past two years such as Orlando, Tampa and South Florida. Its first investment will be Royal Palm’s planned 420-unit Tuscany Village multifamily complex with seven four-story buildings in central Florida’s Sanford.
Royal Palm’s planned 40-story, 240-unit Elevate tower at 1317 and 1345 North Miami Avenue in Miami’s Arts & Entertainment District will also be included, as well as another tower that is part of Kodsi’s planned mixed-use development on 12 acres in Aventura.
Since late 2020, several Florida markets experienced unprecedented demand for apartments and never-before-seen rent growth. South Florida led the nation with a 58 percent rate hike in the two years from March 2020 to March 2022. Last summer, Orlando took the top spot, leading the nation with an 18.7 percent rent growth, year-over-year, the Sun Sentinel reported.
Although the hikes have calmed to more traditional levels, rents aren’t expected to revert back to pre-pandemic levels.
Participant Capital’s fund will raise capital for the next year and invest for about three years after that, Wasserman said. It’s open to accredited investors, or those with a net worth of at least $1 million, or an income for each of the past two years of $200,0000 for individuals and $300,000 for two investors.
Miami-based Royal Palm Companies, founded in 1978 and led by Kodsi, has developed more than 9,500 residential units, according to its website. At Miami Worldcenter in downtown Miami, the firm completed the 60-story Paramount condominium tower and is building a 50-story Legacy Hotel & Residences.
In 2011, Kodsi founded Miami-based Participant Capital as the capital arm of Royal Palm Companies.
Participant’s equity fund comes on the heels of developer Arnaud Karsenti’s 13th Floor Investments launching a $300 million investment fund mostly targeting the Sun Belt, as well as other markets nationwide. Similar to Participant’s fund, 13th Floor’s fund is mostly a wager on the Sun Belt market’s real estate boom, though Karsenti conceded that he would seize on distressed opportunities that arise in South Florida.