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Apartment investment fund launched, 80-unit Sherwood Oaks first purchase for $13.6M

TIBURON – Ratel Investments LP, a private-equity firm specializing in multifamily properties, just made its first North Bay purchase and embarked on a fund-based model for acquiring commercial real estate.

Tiburon-based Ratel and Westbridge Properties of San Francisco acquired 80-unit Sherwood Oaks Apartments at 200 Bolinas Road in Fairfax. The deal was inked in mid-August for $13.6 million, or $170,000 a unit.

The firm has worked with a number of operating partners such as Westbridge and Oakland-based A.F. Evans, which participated in previous Bay Area deals, to bring local property knowledge and professional management to the deals.

“They allow us to buy and have a good track record in an area,” said Ratel founding principal Ron Sann, 43. “Most of our operating partners are good at renovating and managing apartments,” said Ratel’s other principal, Joe Gillach, 49. “We’re good at raising money to benefit investors.”

Ratel provides up to $8 million toward each purchase, including a 10 percent vetting contribution from Mr. Sann and Mr. Gillach. Net of performance-based fees, the firm quotes an internal rate of return of more than 28 percent and a realized return on equity of 52 percent.

Sherwood Oaks was Ratel’s 25th investment since Mr. Sann, a former commercial real estate portfolio manager for Chase Manhattan Bank and a tech-industry mergers and acquisitions specialist, started the firm in 2001.

Ratel has raised nearly $60 million from a pool of 140 investors, about 30 of whom are Marin County residents, to acquire more than $400 million worth of commercial properties in California, Washington, Colorado and Texas.

Eighty percent of the real estate is multifamily properties, including about 2,500 multifamily and senior housing units and 1 million square feet of retail, self-storage and office developments.

A rise in foreclosures of single-family homes, which has been propping up rents and occupancy rates in certain areas, together with a slow rate of construction of mid-grade, institutional investment-grade apartments in the past two decades, make apartments a good long-term investment, according to the Ratel principals.

“This is a good time to find good investments, but a couple of years ago the market was not so good,” Mr. Gillach said, noting that the firm was completing one deal a year at that time.

However, higher equity-to-debt ratios required by lenders has led to a drop-off in North Bay apartment investments overall, according to Scott Raymond of Sperry Van Ness. Sales are expected to be lower than last year’s, which were lower than 2006 volume.

“For the first time in a while, buyers largely are not in the market unless they are in an exchange or have a long-term view,” he said.

The 45-year-old Sherwood Oaks property wasn’t listed for sale and was only 55 percent occupied. The plan is to invest $1.65 million over the next several months upgrading exterior features such as balconies as well as the 1960s-style interiors with new flooring, appliances and granite countertops.

Sherwood Oaks also was Ratel’s first acquisition via its newly created Ratel Value Fund I. So far, $9 million has been committed to the fund, with a goal to raise up to $15 million. Sherwood Oaks and an 84-unit complex in San Jose, which has a separate operating partner, are the first of a half-dozen properties likely to be purchased through the fund, according to Mr. Sann.

Private-equity funds, partnerships or tenancies-in-common are common methods for direct real estate investment. Examples of other such local firms are Rutherford Investments in San Rafael, Professional Financial Investors of Novato, Seaview Ventures of Larkspur and LeFever Mattson of Vacaville. Publicly traded real estate investment trusts offer indirect real estate investment opportunities.

Contractors and suppliers involved in the Sherwood Oaks renovation include Pierre Homes and Steele Construction of Santa Rosa, Aurora Cabinets & Countertops of San Rafael, Fairfax Lumber & Hardware of Fairfax and Mead Clark Lumber of Santa Rosa.

For more information on Ratel, call 415-435-8055 or visit www.ratelinvestments.com.