After losing out on several bids for expensive apartment buildings in Chicago, developer Nick Sinatra is trying to assemble more investor cash so he can act quickly in higher-priced cities.
Sinatra is seeking to raise more than $75 million, primarily for use outside of Western New York. He wants to make sure he has enough money available at a moment's notice to close a deal. And he wants to diversify his sources to increase his capacity.
Already, he's one-third of the way toward his goal, after his primary backers – the Pritzker/Vlock Family Office – seeded his fund with the first $25 million.
The Buffalo native has rapidly built a portfolio of acquisitions and redevelopment projects in Buffalo in the last few years, making a name for himself by tackling some more challenging properties in downtown Buffalo, the Buffalo Niagara Medical Campus and now the city's East Side.
But he hasn't limited his efforts to this region. Backed by high-powered investors and Wall Street investment firms, he's also made significant purchases in southern California and more recently set his sights on other Rust Belt cities.
"We're still very much committed to the local market, but we're looking at stuff outside the market as well," Sinatra said. "We're just now hitting our growth stride outside of the market."
Sinatra is still pursuing redevelopment deals with partners in Buffalo, including a $26 million project on Jefferson Avenue with two apartment buildings, the $35 million remake of McCarley Gardens and another $20 million in several other projects. He's now turning his attention locally to creating new mixed-income and affordable housing, rather than market-rate apartments, because "that's where we think the need is."
But that's only part of his business. His company's bigger focus is buying and managing apartment buildings, using "chunks of big capital" from investors. "That's what we're growing out of town," he said. "We're always looking for new investors for these projects."
Specifically, Sinatra wants to buy and improve existing properties in cities like Chicago, Cleveland, St. Louis and Minneapolis, whose culture is more closely aligned with Buffalo's. "In California, they're trying to beat you every which way and trying to sue you. That's not the Midwest hardworking mentality that I grew up with," he said.
But Chicago and the other cities are much more costly and competitive markets than Buffalo, and the projects are much bigger. For example, Sinatra just closed on a $53 million apartment purchase in December and expects to do two or three of those a year.
In the past, he's leveraged more than $50 million in capital from members of the Pritzker family – heirs to the Hyatt Hotel chain fortune – who have supported his efforts in Buffalo and elsewhere. He also worked with Colony Capital to purchase single-family homes in the California after the housing bust and financial crisis sent values plummeting, although that's largely over. And he's worked with a pool of other investors that know him and like what he's already done, such as Prospect Capital and Torchlight Capital.
Still, he said, "the marketplace has gotten so competitive around the country that that's not good enough, having three to four deep-pocketed investment partners." Sinatra said both the Pritzkers and Colony are still willing to invest with him, but they have their own procedures before approving a big outlay of money.
Instead, he needs to have the capital "ready to go" within 15 days of signing a purchase contract. That's because just as with a regular home purchase, sellers don't like waiting for contingencies to clear, such as arranging for financing. So if one bidder has the money ready but Sinatra has to go ask his partners for it, he risks losing the deal.
"Things are so competitive now, not just locally but around the country. When things are ready to go, you have to act fast," he explained. "You've got to have capital ready to go. You can't get a deal under contract and then go talk to investors."
That pressure has been rising for some time in cities like San Francisco, New York, Los Angeles and Washington. But it's new to the Midwest, where Sinatra has now been beaten not only in the Windy City but also in St. Louis and Minneapolis, simply because he couldn't produce the money fast enough. "So as a company that's looking to grow and still feels bullish about apartments in America, we have to be more competitive in how we're putting capital together," he said.