by Deborah Balshem in Fort Lauderdale, Florida
Cortland Partners, an Atlanta, Georgia-based real estate investment and management firm, has retained CohnReznick to field interest and is in talks with several private equity firms, said CEO Steven DeFrancis.
The privately held company would hire an investment bank or other advisor to complete a deal, given a conflict of interest related to contingency fees with CohnReznick, which also is Cortland’s corporate auditor and tax firm, DeFrancis said.
Cortland, which is owned by DeFrancis and two minority partners, is projecting 2014 revenue of USD 260m, according to DeFrancis. It focuses squarely on multifamily residential real estate, basically rental apartments in the Southern US, and its portfolio consists of more than 20,000 units valued at more than USD 2bn dollars.
The company, which was founded by Cortland in 1996, has grown significantly as of late, hiring 50% of its 580 employees within the last 12 months, noted DeFrancis. Fresh capital would be used to accelerate growth. Cortland would consider a partial or full sale to a financial or strategic buyer, and has been approached by both, though DeFrancis said a financial buyer is more likely.
Financial investors, who typically have been absent from the industry, are showing increased interest given the “uncharacteristic shift” in the market towards multi-family rentals, due to several factors including the age of the population as well as the economy, explained DeFrancis. There is a “massive demand” for rental apartments on the heels of below-average new production and debt challenges for home buyers, he added.
The chances of a REIT buying the company are “slim,” according to DeFrancis, who noted they are trading at a discount and a purchase of Cortland would be “very dilutive.” Larger REITs in the space include Chicago-based Equity Residential (NYSE:EQR) and Houston-based Camden Property Trust (NYSE:CPT), DeFrancis said. Merchant developers and institutional owners could show interest, said DeFrancis, noting AllianceDevelopment and CalPERS as bigger players in those spaces.
Cortland has seen increased interest for the past two years and “got very far down the road” with one private equity firm, said DeFrancis, but the deal “fell apart” due to financial regulations that prohibited the group from ultimately purchasing Cortland.
DeFrancis, who is 42 years old, founded Cortland primarily as a development company. It shifted its focus to acquisitions at the beginning of the economic downturn in 2007, taking advantage of distressed properties and leveraging its development arm. Cortland owns and manages all of its properties.
It operates mainly in the southeast and southwest US, from suburban Washington DC down to Florida and out to Texas, with a focus on cities with more than 750,000 people, DeFrancis said. The company will continue to grow organically strictly within the multi-family rental space, and has plans to add 10% growth in additional metropolitan areas within its current footprint, he said.
Cortland’s corporate law firm, according to DeFrancis, is Morris, Manning & Martin.