2024 Calvera Partners Investor Letter


Brian D. Milovich

Managing Principal, Calvera Partners

Welcome to our 2024 investor letter. This year, we are streamlining the way we communicate with our investors. The annual investor meetings, broken out by investment fund, are now held in early March. This timing better aligns with the tax season and annual financial reporting. All quarterly newsletters are now sent alongside any investment distributions. And, this annual letter will provide our recap of the market from the prior year and our thoughts on the year ahead.

2023 Tug-of-war

The 2023 apartment market was challenging, both from an investing and operating standpoint. Much like the game of tug-of-war, each competitor dug in on their side and didn’t budge. For example, few properties traded as buyers and sellers couldn’t agree on value. According to CBRE, transaction volume fell 60% in 2023 compared to 2022. Also, the beginning of historic levels of new supply negatively affected rents. This shifted bargaining power to the tenants and away from owners. In the face of soft rents and rising costs, property managers needed to be more diligent.

Investment landscape

In 2023, would-be sellers couldn’t sell. Yes, their desire for pricing closer to 2022 levels was outrageous. But they had no choice. In many instances, their property was worth less than the debt owed, and only an unrealistic price would bail them out. Instead of selling, they found ways to hold on and wait.

Even owners with positive equity value were not selling. After years of cap rates1 below 5% and near 3% in places like Austin, recency bias clouded owners’ vision. Why sell when you believe interest rates and cap rates will fall? If an owner could wait to sell, they waited in 2023.

The properties that did sell were in A+ locations, were newer, or had sellers that needed to transact. We found a forced seller in our acquisition of Saddlehorn Vista Apartments in Fort Worth, TX. Saddlehorn was the final investment in Calvera’s Fund 3. The seller had distress in other parts of their portfolio and needed to raise capital. According to the broker, Saddlehorn was one of the seller’s only assets with equity value. That means their other portfolio properties were worth less than the value of their debt. Not a great position to be in, but it compelled them to sell.

We like the Saddlehorn acquisition because of its low price per unit and high going-in yield. Our basis is ~$20k per unit lower than purchases made in 2021 and 2022. The going-in cap rate of 5.7% is the highest of any property in Fund 3. Since this is a value-add investment, we believe we can improve the yield to 7.1% by year 3. That will produce the positive leverage2 we want to see.

We saw few deals like Saddlehorn in 2023.


General property management became more difficult in 2023. Revenue growth wasn’t automatic anymore. Historic levels of new apartment supply started to saturate many markets. This caused rents to decline or remain flat. Expense-wise, costs grew close to 10% over 2022. Insurance rates rose, and coverage became harder for properties with any non-standard characteristics. Fighting the tax assessor through appeals became a more popular way to find savings. Owners and managers had to be on their game and it’s not getting any easier in 2024.

Supply challenges were and are being felt in places like Raleigh-Durham and Minneapolis. The Triangle’s supply surge is a result of its desirability. Though rents have lowered, demand remains strong. Minneapolis has chipped away at its pandemic-delivered units as demand improves. Markets like the chronically undersupplied San Francisco Bay Area continue to deal with tepid demand. Interestingly, Saddlehorn’s pocket of Fort Worth has proven to be resilient. Occupancy and rents there are strong from limited new supply. Nationally, the areas with the most rent growth were in the Midwest and Northeast. Not coincidentally, those areas also received the least amount of new apartment supply.

The supply dynamic has created a renewed focus on the basics. Leasing, tenant relations, and expense management need to be well executed. No property can get by anymore with passive operations. As a result, we made some changes in our portfolio:

  • We replaced property management in North Carolina with Drucker & Falk. They were able to address deferred maintenance and improve property curb appeal. We also used their master insurance policy to gain considerable insurance savings.
  • In Minneapolis, we hired Corridor to lease units during the slower winter months. They have had great leasing success and are a model for how to interact with tenants in 2024.
  • We hired The Tipton Group to manage Saddlehorn in Fort Worth. Their local expertise has enabled the property to outperform its submarket occupancy.

Going into 2024, we will continue to focus on improving revenue and controlling expenses. This will bolster cash flow and support steady distributions.

2024 Outlook

Is distress coming to market in 2024?

It’s no secret that there is distress in the apartment market. Veritas, GVA, and Tides are a few of the high-profile owners having trouble. Each of these companies is addressing their problems in different ways.

Veritas lost large portfolios of San Francisco apartments to their lender. Their debt sold at a discount to par3, and the new lender foreclosed to take ownership. So far, this type of distress hasn’t manifested on a larger scale. I’m uncertain we’ll see too much more of this in 2024 as few lenders seem willing to take losses.

GVA has tried to sell several assets, but few have closed. They purchased a 20-property, 3,000-unit portfolio in June 2022. This is peak pricing for the cycle. Adding to their difficulty is that this portfolio likely had a high level of deferred maintenance. We’ll see in 2024 if they’re forced to make additional moves on their portfolio.

Tides made news as an aggressive buyer of apartment properties in Dallas-Fort Worth, Phoenix, and Las Vegas. Today, Phoenix and Las Vegas are experiencing rent declines from an influx of supply. According to The Real Deal, Tides is trying to raise $69 million in preferred equity4 to shore up their portfolio. This money will go towards buying new interest rate caps and covering operating expenses.

Veritas’s lender didn’t give it time to work things out. GVA and Tides are hanging on by raising more capital or culling parts of their portfolio. There are plenty of smaller syndicators who used floating-rate debt and are now in trouble. These groups do not have the ability to raise more capital and don’t have negotiating leverage with their lender. Forced sellers will emerge in 2024.

What does this mean for 2024?

We predict the following will happen this year:

  1. Transaction activity will improve over 2023. Forced sellers, overwhelmed owners, and those out of time will come to market.
  2. Apartment rents will remain weak from historic levels of new supply. However, we believe the second half of 2025 and 2026 could be banner years for rent growth.
  3. Operating expenses will remain high. This puts a premium on quality management.
  4. Interest rates will stabilize, providing clarity to values. Even if rates are higher, once the market believes it has steadied, then deals can get done.
  5. Real estate investment will be an alternative to cash once again. Rising real estate yields and/or falling cash yields, will produce a positive comparison.

This all points towards 2024 being a great year to purchase apartment properties. Yes, there are near-term challenges with rents and operations, but that’s also why there’s opportunity. The combination of depressed NOI and higher cap rates (yields) allows us to acquire properties at a competitive and low basis.

A low basis is advantageous in real estate. It gives an owner flexibility in rents compared to its competition. It allows for a lower level of debt, on a per unit basis. And, it can provide for more pronounced appreciation when the market improves once again. As long-term holders in the new Calvera Income and Growth Fund, a low basis allows us to win from the outset. We are actively evaluating multifamily assets where one competitive advantage is its basis.

We appreciate your investment and interest in Calvera Partners. Having a positive and deep relationship with our investors is our primary goal. Strong real estate returns are only one part of the relationship. Through transparency, accessibility, and thought leadership, we seek to enhance our bond with investors. As always, please don’t hesitate to reach out to any one of us with questions.

Best regards,

Brian, Brian, and Dave


For more details about Calvera’s investment offerings, click here.


1 Cap rate or capitalization rate represents the yield of a property over a one-year time horizon. It is calculated by dividing net operating income (NOI) by the purchase price or property value. It is a valuation method used to compare different real estate investments.

2 Positive leverage arises when the yield of an investment is higher than the interest rate of the property loan. This is nominally true when the loan has interest-only debt. If the loan is amortizing, then the loan constant (principal + interest / loan amount) must be measured against the property yield to determine the occurrence of positive leverage.

3 Discount to par is a term used to describe that a loan was sold below its face amount. For example, if a loan was originated for $30 million and was sold to an investor for $25 million, it had a $5 million discount to par value. The original lender is recognizing a loss in this example.

4 Preferred equity in commercial real estate is a tranche (layer) of equity that is senior (or “preferred”) to common equity and usually junior to the debt on a property investment. In a liquidation scenario where the investment has a 1) senior loan, 2) preferred equity, and 3) common equity, the common equity is in the first loss position. The preferred equity will absorb losses before the senior loan does. Also, because preferred equity sits between debt and equity, it can be structured to have traits like both.



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