Q1 2024 Quarterly Review

San Diego, CA – April 15, 2024 – We would like to start by thanking you & all of our Partners who participated in the Annual Investor Conference this year. We received great feedback on the group shares and specifically the longer detailed individual property update videos in your Investor Portal.

Acquisitions and Dispositions

In the first quarter we successfully closed on the $37M acquisition of Merchants’ Square, a strategically located open air retail shopping center located in Carmel, Indiana. This asset was purchased with a fixed interest rate in the goal of producing steady cash flow for the Ownership Group. The first pro-rated distribution to our Partners is in line with our underwriting and will be sent this quarter. This acquisition echoes what we shared at the investor conference, notably, that existing relationships and a track record of performance is how we have an advantage in getting and winning deals in the current competitive environment.

Looking ahead this quarter, we currently have an open air retail shopping center, Johns Creek Town Center, under contract for $68.85M. Again, this deal was won because we have previously bought and sold successfully with the seller. Ultimately this track record of performance allowed us to win this deal in a competitive bid process. This investment opportunity will have five year fixed interest rate debt and is projected to have strong cash flows as it is currently 99% occupied and located in one of the best sub markets of Atlanta, Georgia.

We are happy to report that we currently have a multifamily property outside Austin, Texas, Oaks on Marketplace, under contract to sell for $45.1M. We acquired this asset in 2019 for $36.2M. This business plan is estimated to return a 1.7x equity multiple for our investors at the time of sale. A second asset, Northpoint in Fort Worth, Texas, is currently on the market for sale. We are happy to report that we have had a very strong response to date with over 60+ tours before the call for offers. Once we receive, review, and decide on the best offer, we will share with our investors the timeline, sale price, and estimated return of capital.

We are on track and have very good traction for multiple refinances and future listings to go to the market in Q2 and Q3 of this year. These outcomes could result in the return of cash and capital, potential improved cash flows, and distributions from some refinances due to the favorable response by lenders and institutional capital on retail real estate and its current popularity in the marketplace.

Inflation & Fed Update

The Federal Reserve previously signaled plans for multiple interest rate cuts before the end of the year. Stock and Bond markets rallied in December in anticipation of early rate cuts in 2023. Yet recent economic data, including three consecutive higher than expected inflation readings (CPI), could cause the Federal Reserve to delay implementing interest rate cuts. Meeting minutes recently released from the central bank’s rate-setting Federal Open Market Committee meeting in March stated “Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent.”

A delayed timeline for rate cuts is likely to place further distress on a range of properties throughout the industry.

This point and time in the market presents unique buying and investment opportunities from the macro economic pressures, i.e. elevated interest rates, loan maturities, etc. The coming months and year will provide us with unique circumstances as market conditions drive or dictate seller motivations, ranging from distressed sellers, relationships, or closed end funds in need of liquidation. As shared, we firmly believe that we will be rewarded with a first mover advantage on what we acquire this year. Being selective and buying properties now, before everyone is in full swing, is a part of the thesis we feel strongly about for our 2024 acquisitions.

As shared, we are already taking advantage of the moment with the acquisition of Johns Creek Town Center, scheduled to close in May/June. This top tier shopping center, located in one of the best submarkets of Atlanta, Georgia, is under agreement at an advantageous price due to a combination of seller’s motivation, our track record of closing, and our relationship with the seller.

Looking Ahead

Due to recent economic data, stronger economic conditions, and persistent inflation, the timing of the transaction market seems to continue to push further into the year before the full momentum of buying and selling will likely occur. 

It is also likely that 2024 continues to be lower transaction volume and opportunities. This is a different sentiment than the markets and commercial real estate professionals started the year with, as they previously priced in and expected multiple rate cuts. 

This is a double edge sword. For one, a timid and slower market allows us and our unique relationships and track record to cherry pick opportunities in an already slow market, meaning sellers have more motivation but with less competition as capital continues to wait and stay on the sideline. The flip side is that transactional volume for the year will likely remain low. Thus we will have very good but limited investment opportunities as we currently view the remainder of 2024.

About Equity Street Capital: Equity Street Capital (ESC) is a San Diego-based commercial investment firm renowned for its focus on achieving attractive risk-adjusted returns while maximizing long-term capital appreciation. Founded by real estate investors and entrepreneurs Than Merrill and Paul Esajian, Equity Street Capital is dedicated to providing transformative real estate investment opportunities to it’s investors.