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Thread: Eastham Capital Funds performance 2019 on

  1. #1
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    Default Eastham Capital Funds performance 2019 on

    The level of investment by iTulip members is high, in excess of $20M to date starting with Fund II in 2010 early in the recovery. So far returns have been quite good. Eastham Capital funds have returned more than $24M to iTulip group members to date. Given that fact and the re-start of iTulip to track developments over the next few years, a forum for discussion seems appropriate.

    The theory of their "C properties in B markets" strategy is to invest in multi-family properties that are not the targets of speculative investment at inflated prices, allowing Eastham to get into generally cash-flow negative properties at a good price, fixing them up, making them the best value for tenants for that class of apartment in a geographic region, and making the cash-flow positive. In addition, by owning apartments that offer the best value for tenants in a given geography, occupancy and cash flows will tend to remain high even during economic contractions, as tenants from higher cost apartments will tend to select the better value if the need to downgrade. High-end apartments tend to suffer from lower occupancy during recessions.

    The logic of it is hard to argue with. If there is another recession in our near future this theory of our investment will be put to the test.
    Last edited by EJ; 01-09-19 at 09:25 PM. Reason: JK noted an error

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    Default Re: Eastham Capital Funds performance 2019 on

    i think you mis-stated the proposition: it's "c properties in b neighborhoods." i.e. properties that need a little tlc to bring them up to or a bit above the locale's standard. the other thing they say is something to the effect that "we fix properties, we don't fix neighborhoods." the value proposition is strong-the c properties can be purchased for reasonable prices, fixed up at reasonable cost and management strengthened to allow increased rental income. then the property can be resold at a higher cap rate, or if a good sale price is not achievable the rents are collected to provide a good income stream.

    i've invested in eastham iv and v, and so far i've been delighted at the performance. one of the things for which i'm most grateful to itulip is bringing eastham to my attention. v has only called for 30% of its capital so far, with another 10% capital call on the horizon. so i think it's going to be a while before v is fully invested. if there's a vi in a few years, and current performance continues, i will happily sign up.

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    Default Re: Eastham Capital Funds performance 2019 on

    Quote Originally Posted by jk View Post
    i think you mis-stated the proposition: it's "c properties in b neighborhoods." i.e. properties that need a little tlc to bring them up to or a bit above the locale's standard. the other thing they say is something to the effect that "we fix properties, we don't fix neighborhoods." the value proposition is strong-the c properties can be purchased for reasonable prices, fixed up at reasonable cost and management strengthened to allow increased rental income. then the property can be resold at a higher cap rate, or if a good sale price is not achievable the rents are collected to provide a good income stream.

    i've invested in eastham iv and v, and so far i've been delighted at the performance. one of the things for which i'm most grateful to itulip is bringing eastham to my attention. v has only called for 30% of its capital so far, with another 10% capital call on the horizon. so i think it's going to be a while before v is fully invested. if there's a vi in a few years, and current performance continues, i will happily sign up.
    Thanks, fixed it.

    While obviously disappointed that we as a group did poorly with our TruTouch investment after many years of very hard work, personally investing approximately $750k of uncompensated time on board and other work, assuming a total loss it's worth noting that as a group we've gained a significant multiple of that loss while doing nothing more than read reports, write checks and receive distributions.

    Always have an eye out for more Eastham Capital opportunities to bring to the group, but at this stage of my life unless something extraordinarily and obviously amazing falls in my lap, I'll be sitting out the start-up investing business for the duration, the sole exception being of course of my own.

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    Milton Kuo is online now iTulip Ambassador, iTulip Select Premium Member
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    Default Re: Eastham Capital Funds performance 2019 on

    One thing I've been watching and suspect is that the sweet spot for returns was Eastham Fund III and I suspect returns will be lower for Fund IV and perhaps even lower for Fund V. It seems that there are now many more players doing the Eastham thing: buying lower end apartments that are in need of repair and better management, renovating them, better managing them, and then eventually selling them. That seems to be showing up in the general prices of apartments that Eastham has been buying.

    It was very common to see Fund II buying apartment complexes where the per unit costs were $30,000 - $50,000 with the rare purchase of properties that had per unit costs of $82,000 or $99,000 for Class A properties. In funds IV and V, I'm seeing a lot more properties being bought at $60,000 - $70,000 per unit and these are not Class A properties. Many of the apartments Eastham has purchased are in the Houston area, which I am fairly familiar with. In Fund IV, two Class A properties were in Houston and San Antonio with per unit prices of $101,000 and $113,000, respectively. That's actually getting pretty close to the price of a lower end house in the Houston area.

    My gut feeling is that a decade of ZIRP and QE have affected prices on Class B and C apartment complexes enough that excellent returns are going to be much harder to make. I think Eastham's ability to use its network to find off-market, distressed sales is going to be the key of whether it can generate returns comparable to its previous funds because the per unit prices of the regular buys has gone up noticeably with each fund.

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    DSpencer is online now iTulip Ambassador/Select Premium Member
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    Default Re: Eastham Capital Funds performance 2019 on

    Quote Originally Posted by Milton Kuo View Post
    One thing I've been watching and suspect is that the sweet spot for returns was Eastham Fund III and I suspect returns will be lower for Fund IV and perhaps even lower for Fund V. It seems that there are now many more players doing the Eastham thing: buying lower end apartments that are in need of repair and better management, renovating them, better managing them, and then eventually selling them. That seems to be showing up in the general prices of apartments that Eastham has been buying.

    It was very common to see Fund II buying apartment complexes where the per unit costs were $30,000 - $50,000 with the rare purchase of properties that had per unit costs of $82,000 or $99,000 for Class A properties. In funds IV and V, I'm seeing a lot more properties being bought at $60,000 - $70,000 per unit and these are not Class A properties. Many of the apartments Eastham has purchased are in the Houston area, which I am fairly familiar with. In Fund IV, two Class A properties were in Houston and San Antonio with per unit prices of $101,000 and $113,000, respectively. That's actually getting pretty close to the price of a lower end house in the Houston area.

    My gut feeling is that a decade of ZIRP and QE have affected prices on Class B and C apartment complexes enough that excellent returns are going to be much harder to make. I think Eastham's ability to use its network to find off-market, distressed sales is going to be the key of whether it can generate returns comparable to its previous funds because the per unit prices of the regular buys has gone up noticeably with each fund.
    Eastham III and IV have been great and I have nothing but positive things to say about the results and the quality of the reports provided by management. That being said, I didn't invest in V, partly out of fear that the timing was not ideal. Nonetheless, I would rather invest with great people at a bad time than the opposite so it may have still been a mistake to sit that one out.

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    Milton Kuo is online now iTulip Ambassador, iTulip Select Premium Member
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    Default Re: Eastham Capital Funds performance 2019 on

    Quote Originally Posted by DSpencer View Post
    Eastham III and IV have been great and I have nothing but positive things to say about the results and the quality of the reports provided by management. That being said, I didn't invest in V, partly out of fear that the timing was not ideal. Nonetheless, I would rather invest with great people at a bad time than the opposite so it may have still been a mistake to sit that one out.
    I have nothing but positive things to say about Eastham Capital (I wish I had committed more capital to the funds), too, and hope no one miscontrues my speculations about returns for Funds IV and V being lower than the returns for Fund III as any sort of disparagement. I'm just stating what I think is going on in the multifamily home market and how I think it's going to affect Fund IV and V's returns.

    I have participated in all of the funds since Funds II. My reasoning for participating in Fund V despite my concerns about hot money starting to flow into Class B and C apartments was the track record of Eastham Capital's previous funds and the fact that Fund V has a fairly long investment period (4 years) relative to the previous funds, which gives them the opportunity to wait things out if prices get out of hand.

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    Default Re: Eastham Capital Funds performance 2019 on

    Quote Originally Posted by Milton Kuo View Post
    One thing I've been watching and suspect is that the sweet spot for returns was Eastham Fund III and I suspect returns will be lower for Fund IV and perhaps even lower for Fund V. It seems that there are now many more players doing the Eastham thing: buying lower end apartments that are in need of repair and better management, renovating them, better managing them, and then eventually selling them. That seems to be showing up in the general prices of apartments that Eastham has been buying.

    It was very common to see Fund II buying apartment complexes where the per unit costs were $30,000 - $50,000 with the rare purchase of properties that had per unit costs of $82,000 or $99,000 for Class A properties. In funds IV and V, I'm seeing a lot more properties being bought at $60,000 - $70,000 per unit and these are not Class A properties. Many of the apartments Eastham has purchased are in the Houston area, which I am fairly familiar with. In Fund IV, two Class A properties were in Houston and San Antonio with per unit prices of $101,000 and $113,000, respectively. That's actually getting pretty close to the price of a lower end house in the Houston area.

    My gut feeling is that a decade of ZIRP and QE have affected prices on Class B and C apartment complexes enough that excellent returns are going to be much harder to make. I think Eastham's ability to use its network to find off-market, distressed sales is going to be the key of whether it can generate returns comparable to its previous funds because the per unit prices of the regular buys has gone up noticeably with each fund.
    Interesting observations, thank you.

    Fund II launched shortly after the recession ended. Fund II benefitted from a depressed property market and reduced access to credit. In addition to having a large network to find good deals, an outstanding credit rating gave the Eastham Capital team access credit when others were shut out. The result Fund II returns have been nothing short of astonishing, far more than they suggested in their webinars with us.

    As the economy recovered, suitable properties purchased for subsequent funds have grown increasingly difficult to find, nonetheless the Eastham team has been able to do so. Relationships, savvy negotiation, and shoe leather are the secret sauce.

    All that said, the economy has continuously expanded since Fund II. I expect the thing to watch during the next recession is whether occupancy rates in fact hold up.

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    Default EC5 outlook

    The target yield on EC 5 is 16%, vs 18% on earlier ones.

    The reasons include these:


    1) More competition. Ie. more people bidding for "fixxer upper" apartments that can be flipped.

    2) Tighter apartment supply in general: The construction of multifamily has not kept pace with population,
    making it harder to find bargains. This is discussed in EC5 reports.

    3) larger scale of EC5. Ec5 is much larger than EC3. Even with larger staff, finding the "special bargains" will be more difficult, if not impossible.
    What if Ec3 bought all the bargains available? Then fund the size of EC5 would constrain them to buy some "regular price" complexes, or wait much longer to find the bargains---exactly what is happening. Capital calls coming much slower, which is OK for me.

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    Default Re: EC5 outlook

    yes, capital calls for fund v are slower. i went over them a few days ago. they're tracking fund iv in dollars, but fund v is twice as large, and thus calls have been half the pace in percentages.

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    Default Re: EC5 outlook

    Another Fund III distribution today. Funds III and IV have had six distributions since Oct. 31, 2018:

    Oct. 31
    Nov. 16
    Dec. 11
    Dec. 12
    Jan. 11
    Jan. 22

    They appear to be doing a great job of exiting at the top of the market.

  11. #11
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    Default Re: EC5 outlook

    fund v actually sold one of its properties recently after a holding period of only 14 months with a NET irr of 34.6%, net times money returned 1.42x.

    only 30% of fund v's capital has been called to date, with another 10% call likely this quarter. at this rate, this fund's acquisitions might extend into the next downswing

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