Building Middle Market Portfolios

Building Middle Market Portfolios

Olive Hill Group, a Los Angeles-based commercial real estate investment firm, is putting together small portfolios of middle market office properties with the aim of re-selling the assets to institution- al investors who want to achieve scale quickly. The company is targeting deals in the $30m to $60m range, an area that’s traditionally been under the radar of institutional buyers. “The $30m to $60m range is not getting that much attention. We’re pulling together properties to appeal to institutional investors,” said Tim Lee, co-founder.

Large institutional investors tend to prefer to write a large check and more quickly deploy capital, opting for bigger properties and trophy assets. But more large investors are taking a look at acquir- ing portfolios of assets in a particular submarket, which makes property management easier, Lee said.

Olive Hill has been assembling three to four properties with a total value of about $100m to $125m. Usually, each individual property ranges between $25m to $30m and is close to or of a similar asset class, with complementary tenants. “It’s harder to wrap your head around with different tenants and sizeable leasing,” he said. “This is not the same as taking a hundred $1m properties and bottling them together. You’ll run into property management and scalability.”

For property owners and holders that have challenging properties or leases coming up at the same time, bundling similar properties together can help lower risk. “It has to be apples to apples,” Lee said. “It’s easier for investors to wrap their heads around.” Also, parceling together stock in a portfolio helps to balance out risk in a climate with rising prices and tight cap rates. “Investors are getting shy with the potential end of the cycle coming, and are willing to write large but fewer checks,” Lee said.

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