This post is about a month late but 2021 was such an oddball year that we thought it appropriate to step back, process what happened and reflect on the blockbuster year we had at Valorem Ventures.
Blockbuster performance...... during the worst pandemic we might see in our lifetime..... has an odd dissonance. However, our core investment thesis, the team we built, our execution and our local presence in two of the fastest growing real estate markets drove that performance.
Let's start with the metrics. We evaluated over 46 multi family deals in 2021. We pursued 11 seriously where we made it into the final round of bidding and closed on four deals. Three in Austin and one in Phoenix. We could have landed five of the seven we walked away from but not chasing a deal remains a core part of our thesis. We believe in capital preservation as our #1, #2 and #3 priorities followed by appreciation. In each of the four deals we closed we weren't the highest bidder or the one offering the best terms but we won because of the way we conducted due diligence and the reputation we have established in the marketplace for being a local operator that can perform.
Our first acquisition in 2021 was a Class C property in Austin in Q1, followed by another Class C property we acquired from the same seller in Q2'21. These were the first Class C properties we acquired in Austin because we saw value in the location and a significant value add opportunity. We projected an ~2x return on equity over 4 years on these deals. Based on comparable properties that sold in Q3'21 we believe we can deliver that ~2x return on equity within 2 years or less, which should result in an IRR greater than ~40%.
Our third acquisition was a Class A+ property in Phoenix in Q2'21. We projected an ~2x return of equity on that property over 4 years. Based on current market comps and inbound interest on that property we expect to be able to deliver an IRR greater than ~60% on that deal in 2022. That just might be our quickest full cycle deal with just over a year from acquisition to sale depending on how it pans out. We were able to create so much value on this deal because it required us to be bold and take on existing recourse debt with the sponsors personally putting in over $8M of equity and personally guaranteeing the debt.
We might have saved our best effort for our last Class B acquisition in Austin in Q4'21. We received a soft inbound request for an offer to sell within two weeks after our acquisition, which was a pleasant surprise. Another property in the same asset class and vintage sold at about 20% above our purchase price per unit. This indicates an equity growth of ~60% + within 6 months, which is well ahead of our plan of 80% growth in 4 years. Given the explosive growth across Austin we believe this will be a phenomenal long term asset for us.
To use a football analogy, we believe we started our drive at midfield because we focus on the Central Texas and Phoenix markets, which are the top two real estate markets in the country right now and are both seeing explosive rent growth with very low new inventory coming into the market. But we still needed to drive down the length of the field to score. This winning drive was made possible by our investors. We were oversubscribed on all of our deals. Knowing investors would trust us with their capital allowed us to focus on deal sourcing and operations where the true value creation happens. We also expanded our team and bought on mid level experts to help us with back office operations and property management oversight. Last, we upgraded our back end infrastructure. By now you have all hopefully seen our new self service investor portal and we are excited by how it streamlines the full life cycle for each deal.
As we look ahead to 2022 we have ambitious goals. We want to acquire three to four properties in H1'22 and are on track to close our first acquisition in San Antonio next month.
We will end by saying: reputations and relationships take a lifetime to build but can be tarnished by one bad deal.
We are committed to continue to growing Valorem Ventures as a responsible steward of our investors capital, an exceptional employer for our growing team and as a trusted operator and partner in the markets we operate in.
Thank you for a fantastic 2021.
Brett Bowman, Selvam Sabapathy and Vivek Sagi
Managing Partners