How Has Ascent Evolved?
Ascent Equity Group
450+ Investors | $3M+ Distributions | Exclusive Multi-Family Syndication Opportunities | Founded by 3 Doctor Dads
We’ve evolved a lot over the past four years. Our journey in creating Ascent Equity Group began in December 2020, driven by a shared desire to invest in opportunities aligned with our passive income goals that could grow over time.?
We approached MG Properties with the proposition if we invested as a single entity, would MG Properties offer improved returns? The ask paid off, as we secured increased preferred returns from 8% to 10% on a $2.5 million investment. This initial success, though challenging to raise that small amount at the time, marked the beginnings of what would soon evolve into our $20+ million deals.?
By March 2021, we recognized the potential for greater impact by pooling our resources into a fund rather than pursuing individual deals. This learning led to the creation of the Ascent Multifamily Fund, which encompassed approximately five deals totaling around $10 million. The initial deal with MG Properties and the Ascent Multifamily Fund has performed exceptionally well, laying a solid foundation for our future opportunities.
However, after those initial deals that got us started, we were ready for a bigger piece of the pie, so we entered the Co-General Partner (Co-GP) space with the CAF Multifamily Fund in the summer of 2021. In this structure, we contributed a modest portion of the total equity, around 5%, while the larger Joint Venture (JV) partner provided the majority. This experience highlighted the importance of having Major Decision Rights, allowing us to influence key decisions related to property management, budgeting, and hiring.?
However, we also faced challenges along the way. The Access Fund, while delivering respectable returns, limited our ability to add significant value, leaving us in a minority partner position with little control. We recognized the need for greater control and influence over their investments, a lesson that would shape our approach moving forward.
Next, we continued with the McDowell deal, formerly known as Tierra Santa, which was a joint venture. This was followed by acquiring Altamonte, a property in Orlando purchased from Disney. These milestones reinforced our strategy of seeking control and influence over the investments by having Major Decision Rights.
The economic landscape played a pivotal role in our evolving strategy. By late 2021, we encountered the risks associated with variable-rate loans, which were popular then. We intentionally shifted to focus solely on deals with fixed-interest rate loans to mitigate the unpredictability of fluctuating interest rates. One notable success was the Altamonte deal, where we secured a nine-year fixed-rate loan that we could assume from the seller. This proved prudent to keep our expenses down when other expenses, such as insurance costs, were going through the roof in Florida.?
Next, we acquired Dakota Ridge, a joint venture in Fort Worth, Texas. This area was identified as an up-and-coming market—a "Path to Progress," similar to neighborhoods like Inglewood in Los Angeles, which are poised for growth due to upcoming events like the Olympics.
However, the economic landscape shifted dramatically, and interest rates spiked, stalling the anticipated progress in the area. Dakota Ridge became one of our toughest deals in the market. While it is performing adequately, the challenges posed by rising interest rates have made this investment particularly difficult. This deal marked our last undertaking in 2022 that involved a variable bridge loan, solidifying our commitment to a more stable financial approach moving forward.
From this experience, we learned several key lessons: depending on our role, we should secure decision rights, opt for fixed-rate loans, and prioritize cash flow. These principles became the foundation of our investment strategy moving forward.
After Dakota Ridge, we moved on to Chisholm Park, another joint venture involving a loan assumption. This property is currently thriving, with occupancy rates above 90%. Like our previous investments, it faces insurance cost challenges similar to those in Florida, but we remain confident in its future value. At this stage, we focused on growing our Internal Rate of Return (IRR) and equity multiple.
We completed the Enclave on Bethany deal as we approached the end of 2022. This joint venture property continues to distribute returns despite fluctuating interest rates. We actually opted for an agency variable loan with a 10-year term and purchased an interest rate cap. The only reason we accepted a variable loan was that it was an agency loan with an interest rate cap. This strategic move allowed us flexibility; we could sell the property after three to four years or acquire another interest rate cap if needed.
Next, we focused on investing in cash flow. In August 2023, we bought Cabana Encanto, now called Sunset View. You can see there was a large jump between the Bethany deal and the deal after that with Cabana Encanto.?
That’s simply because we didn't see any other worthwhile deals at that time and ones that met all of these criteria. So Encanto was a JV with major decision rights and an agency fixed-rate interest rate loan.? And it was already cash-flowing.? It has been distributing monthly since we bought it, and it was the only property we bought all of that year.?
In February 2024, we took a different direction with the Metro Park deal. Unlike our previous equity deals, this investment focused on preferred equity and was a shift into the retail/entertainment sector. Given the current market conditions, we aimed for an IRR of around 11.5% to 13%, slightly lower than our typical equity targets but still attractive given the safety of the preferred equity structure. With substantial sponsor backing, this investment felt secure despite being outside our usual asset class.
When we initially invested, Metro Park was only 60% occupied, but the team has worked diligently to improve this figure, and occupancy has now nearly reached 92% in just a few months. This success reinforces our belief that adaptability and thorough market analysis are crucial to navigating the complexities of real estate investment, as well as learning when to diversify.?
Our current deal, Sunrise in Chandler, has been a culmination of all these lessons learned.
This equity deal features major decision rights, a fixed interest rate loan, and cash flow from day one. As we prepare to close this deal, we are pleased to report that recent interest rate drops will enhance our investors' cash-on-cash returns.
When evaluating investment opportunities, it’s crucial to understand how fees are structured. Many groups in our industry operate with multiple layers of fees—these can include property-level, deal-level, and fund-level fees, often referred to as “waterfalls.” These structures can sometimes lead to what’s known as "double promotions" or "double fees," which can eat into investor returns.
We’ve adopted a joint venture structure, which allows us to avoid the need for these multiple layers of fees. Instead, we have a single set of fees clearly defined and shared between Ascent and Sunrise.
A Closer Look at the Sunrise in Chandler Deal
Let’s use Sunrise in Chandler to illustrate how our fee structure works.
领英推荐
Waterfall Structure:
Investment Tiers:
Fee Breakdown:
This transparent and simplified approach sets us apart from other groups that may include multiple layers of fees, which can often be confusing and reduce investors' overall returns.
Closing in on Sunrise in Chandler
As we wrap up the Sunrise in Chandler project, we’ve faced some delays due to the volatility in the interest rate markets. However, our cautious approach to rate-locking has paid off. Initially, rates could have gone as high as 6.4%, but by waiting, we’ve managed to secure a rate closer to 5.5%, which is actually better than we initially underwrote.
Despite these delays, we’ve ensured that our investors' preferred returns have already started accruing. We believe that your money should be working for you, not sitting idle while we finalize the deal.
We’re close to locking in the final rate and anticipate closing the deal very soon. We’ve already secured enough capital to proceed but have some room left for additional capex and closing costs. Expect an email update from us shortly with all the details.
As we continue to evolve, our investment strategy remains focused on two key types of deals:
Equity Deals: We own the property and have major decision rights in equity deals. We prefer a Joint Venture (JV) or co-GP structure with fixed-rate interest, typically through agency loans. We aim to invest for cash flow, targeting a return of over 4% in the first year and increasing after that. We also seek sponsors with a proven track record and invest in areas with reasonable taxes and minimal risk of natural disasters.
Preferred Equity: This structure allows us to invest with a strong safety net supported by substantial sponsor capital while aiming for competitive returns. We look for deals offering a 10-12% Internal Rate of Return (IRR) and significant sponsor capital. For example, in our current deal, $30 million in sponsor capital is backing us, which provides reassurance. We prefer our last dollar of preferred equity to be less than 70% Loan-to-Value (LTV). If the property value is $100 million and the loan is 65%, we prefer our preferred equity to be a smaller percentage of the total deal, ensuring a more secure position.
We prioritize investments in areas with reasonable tax structures and minimal risk of natural disasters. While states like Texas and Florida have traditionally been attractive markets, rising property taxes—often increasing by 20-30%—have made it challenging to predict expenses and plan effectively.
Regarding the economic outlook, we are navigating a complex environment with high interest rates and unpredictable market conditions. We're cautiously optimistic about interest rates potentially dropping and are monitoring the market closely.
Exciting Upcoming Opportunities: The Dallas Hotel Deal
Shifting gears to what’s on the horizon, we’re excited about a hotel deal in Dallas, which has been selected as one of the official hotels for the upcoming World Cup. This property, completed in 2020, faced some challenges early on due to the pandemic, but it has since gained momentum and is now performing very well. Its selection for the World Cup positions it for strong future performance.
We’re optimistic about this deal, although securing a room during the World Cup might be a challenge—even for us!
Through every challenge and opportunity, we remain committed to transparent communication and updates, strategic decision-making, and delivering value to our investors. As we move forward, we look forward to sharing more successes and insights from our journey in real estate investment.
Until next time, stay informed and keep investing wisely.