A Look at One Chicago-based Investment Firm’s Strategy

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Origin Investments LLC, a Chicago-based real estate investment firm, sees real estate investing through a different lens than many other firms. The company, which has more than $800 million in assets under management, has narrowed its scope in terms of both asset class and geography. In other words, it doesn’t chase all kinds of deals all around the world.

Founded in 2007, Origin Investments buys just two kinds of properties: office and multifamily properties. The firm aims to snap up underperforming assets in deals ranging from $10 million to $50 million in size.

“We kind of straddle light value-add and heavy core-plus, trying to generate a 2x multiple for the fund over the lifecycle,” says Michael Episcope, co-founder and principal of Origin Investments.

Geographically, the firm concentrates on eight U.S. markets—Atlanta; Austin, Texas; Charlotte and Raleigh, N.C.; Chicago; Dallas; Denver; and Houston. Origin Investments prefers to stay away from major markets like New York City, where cap rates are too low for its liking, Episcope says.

That being said, Origin Investments isn’t bound by strict boundaries.

Episcope says the firm is eyeing expansion into other U.S. markets, with Orlando and Tampa, Fla. on the radar, along with Phoenix and Nashville, Tenn. He says the firm is sifting through more than a dozen variables, including cap rates, supply-and-demand dynamics, affordability, job growth and population growth, about various markets before settling on expansion targets.

Origin Investments has raised three funds since its founding in 2007, with the latest fund totaling $151 million. More than 100 investors are on the waiting list for the fourth fund. Many of the fund investors are high-net-worth individuals and family offices.

 “We’re really focused on a growth-and-income strategy, which means that about 50 percent of our return in Fund III will come through cash flow,” Episcope says.

In a Q&A with NREI, Episcope explains how the firm has tweaked its investment focus over time, how members of his firm’s acquisition team operate like snipers and what he dislikes about REITs.

This Q&A has been edited for length, style and clarity.

NREI: What is it about those office and multifamily that keeps you in those two sectors?

Michael Episcope: In Fund I, we had no asset-class or geographic boundaries in terms of what we were doing, so we did everything from student housing to multifamily to retail. In Fund II, we narrowed the world to office, industrial and multifamily, and then also narrowed our geographic focus to our eight markets that you see today. And then in Fund III, it’s only office and multifamily, and there is a reason for that. They’re not as correlated to one another, so we get asset-class diversification and the portfolio actually performs better.

As we’ve narrowed the world and we’ve focused our energy and our efforts on certain micro markets within our target markets and then on asset classes, our team is much more focused, and we are also much more productive as an organization. It’s sort of the paradox of choice. When you limit the choices and you narrow your focus, you can actually be more productive than when you look at the world and tell somebody, “Hey, go find a great deal,” versus “Go find a multifamily property that’s value-add in nature, that’s $10 million to $50 million in these geographic regions.” It’s about giving clarity to the strategy for not only the investor to understand what we do, but also our team and our operational expertise. We’re trying to build scale in these markets, so our deal team has focus and our asset management team has scale in the markets.

NREI: What prompts high-net-worth individuals and family offices to invest with you?

Michael Episcope: Many fund operators are more regional in nature, so we offer a one-stop shop for them to get geographic diversification and asset-class diversification. What gets them over the hump is our success in both asset classes and the experience our team has.

Really, what it comes down to is we don’t look at the world and say, “Hey, we’ve got this $151 million fund, and we want to be 50 percent in office and 50 percent in multifamily and have two assets in every market.” We’re really idiosyncratic. We’re kind of like snipers, if you will. If it turns out that our fund is 80 percent multifamily because those are the types of deals that present themselves with the great opportunity, then so be it. If our fund is 60 percent allocated in the Southeast region because the deals down there have the best risk-adjusted return potential, then that’s our decision as managers. That’s not the intention, but the fund at the extreme could end up that way.

Investors are not buying data. They’re buying a team, they’re buying a track record, and they’re betting on your judgment and your expertise. Our first two funds averaged right around 25 percent net IRR, and in both cases more than doubled our investors’ money over a four- to five-year hold period. We truly believe that our investors are not investors, they’re partners.

NREI: Would you ever want Origin Investments to become a REIT?

Michael Episcope: We don’t have an appetite for becoming a REIT that distributes their product through the broker-dealer network. If we were to become a REIT, that would be for a legal purpose, but we would still use the same fee structures and transparency.

My problem with REITs is that they are so nontransparent, they are so full of high fees. Some of them out there are pretty good, but the majority of them don’t allow the investor to win. One thing we’re really passionate about is closing the gap between the way the high-net-worth investor and the family offices are treated versus the multi-billion-dollar investor. There’s a reason why you will not find, in most cases, an institutional investor going into a nontraded private REIT. I challenge you to find one out there, because they understand the nuances and the limitations that these REITs have; generally, the REITs are going after the private investor who’s putting in $30,000 to $50,000.

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