Reprinted from: Real Estate Alert
APRIL 16, 2003
Opportunistic investor Thomas Mulroy, who has focused heavily on distressed telecom properties over the past couple of years, is launching a venture that will invest up to $150 million in apartment properties this year.
This marks the first time that Mulroy’s firm, T-Rex Capital of New York, will stray from the opportunistic arena into core and core-plus investments. The move, Mulroy says, is aimed at exploiting the current strength of multi-family markets throughout the nation.
Even though T-Rex Residential will target fully stabilized apartment complexes, which are not known for producing high yields, Mulroy anticipates that rising property values and the use of up to 90% leverage will produce annual returns of 10-15%. The vehicle will generally seek out properties around the country that have at least 250 units and cost at least $20 million. If any value-added or distressed opportunities are spotted, they will go into T-Rex Capital’s main portfolio.
Mulroy launched T-Rex Capital in early 2000 with the intention of raising a commingled opportunity fund. However, as the market for distressed and underperforming assets dried up, Mulroy shifted gears to avoid having to deploy capital into a weak market. Instead, he formed a joint venture with an unidentified Wall Street institution to do one-off transactions.
Mulroy became one of the first and most-active buyers of troubled telecom hotels, spending more than $300 million on the properties in 2000 through a division called T-Rex Technology Centers. Some of the properties have been flipped, while others were converted into multi-family and other kinds of properties — including disaster-recovery sites, which companies can use if their main offices become inaccessible.
When demand for disaster-recovery sites increased dramatically after the Sept. 11, 2001, terrorist attacks, T-Rex focused on such conversions by forming T-Rex Mission Critical. That venture has spent roughly $100 million to date and plans to spend another $100 million this year. Mulroy thinks the strategy can be effective for another two to three years.Most recently, it paid Lockheed Martin $22.5 million in January for a 336,000-square-foot research-and-development site at 9220 Godwin Drive in Manassas, Va. Lockheed is vacating the property, and T-Rex will convert it into a disaster- recovery location for an unidentified tenant. T-Rex may hold the property for up to 15 years.
Meanwhile, T-Rex Capital continues to buy a variety of underperforming properties and loans. All told, T-Rex and its various divisions have invested more than $600 million to date, including the use of up to 85% leverage.
Mulroy plans to ride the apartment venture for as long as it lasts. “It might evaporate in a year,” he said of multi-family opportunities. “This happens to be an opportunity in the residential market right now.”