April 4, 2018

JCR Bullish on Middle Market Western Assets


JCR Capital, which has carved out a niche space acquiring and lending to middle market properties that change hands due to life circumstances, including lawsuits, retirement and divorce, is bullish on opportunities in the Western U.S. “Demographically speaking, buyers of middle-market properties are typically males between the ages of 55 and 75, an age range that has ample opportunity for major life events,” said Jay Rollins, managing principal of JCR. “Oftentimes, owners’ family members don’t maintain properties and are looking to sell as is, not to keep it as an investment – these people never planned on being in the business, so won’t take advantage of the 1031 exchange.”

JCR focuses on retail, office, industrial and class B and C apartments in California and other states west of the Mississippi River, focusing on cities with NFL and NBA presence. “We consider middle-market assets to be $50m and below in total value, and these are typically privately owned,” said Rollins. “95% of all commercial real estate transactions are middle market transactions.”

The tax code overhaul passed by Congress and signed by President Trump limits deductions for state and local taxes, disproportionately affecting high-tax states like California and New York and prompting some owners to sell, noted Rollins. The tax code preserved the 1031 exchange and allows a seller of real estate to re-invest the
money without paying a capital gains. “This is adding more fuel to an extremely strong 1031 market,” added Rollins. “In California and New York, investors will trade into other real estate to avoid paying taxes.”

The firm doesn’t have much competition in the space, except for a family office here and there, said Rollins. “Nobody else has raised institutional capital, put a stake in the ground, and said ‘we’re going to own this space,’” he added. “Most institutional capital doesn’t want to be in this space doing smaller deals, because it’s a lot of work. Our margins are not as good as larger funds, but we are able to secure better structures and pricing for our LP investors. We’ve done over 400 deals in the past 25 years and have only had one partial principal loss.”

Disclaimer: This article was prepared by an unaffiliated third party and not pre-approved by JCR Capital, and we have not independently verified any claims made herein. Any opinions are attributable to the author and not to JCR Capital. We have reviewed the article for material misstatements and there are none to disclaim. Nothing herein is an offer to sell any security, including an interest in any JCR Capital private fund, which can only take place after JCR Capital provides a prospective investor with an offering documents package and relevant brochures.