By Greg Ryan
Boston-based The Davis Cos. has raised $977 million to invest in real estate such as apartments, labs and warehouses, closing the firm’s largest-ever fund amid a challenging time for fundraising in the sector.
Institutional investors nationwide have turned away from real estate, instead putting their money into investments that offer close to the same return with much less risk. The $28.5 billion in capital raised by real estate funds in the first three months of 2024 was among the lowest quarterly totals since 2020, according to Preqin. No quarter this decade saw as few real estate funds closed.
Davis felt that chill with its latest fund, its fifth. The firm’s $778 million fourth fund, which closed in September 2020, was its fastest-ever fundraise. The fifth fund was by far its longest, having taken more than two years to raise. Its target had been $950 million.
In seeking out investors, the firm pointed to its almost 50-year track record and sold them on the opportunities available in a “moment of market dislocation,” said Stephen Davis, the firm’s president.
“I’ve rarely seen a better time to invest real estate capital,” Davis said. “I’m deeply appreciative of and honored by being in the position we’re in, to have access to this much capital at this moment in history.”
Those opportunities include acquiring properties simply by taking on their debt, according to Davis. The firm recently acquired Middlesex Marketplace, the shopping center across from the Burlington Mall, at a significant discount through a debt restructuring, he said.
There are also developers with well-located, well-conceived projects who need capital partners given how difficult it is to land a loan of size these days, Davis said.
The firm has a national footprint and both buys properties and develops them itself. Early investments for the fifth fund include properties in New York, Virginia and Florida, in addition to Massachusetts and Rhode Island.
Its targeted investments fall into three buckets: multifamily, industrial, and science and technology. That last category includes not just life sciences labs, but assets like climatetech and robotics facilities.
For housing investments, the firm focuses on the Northeast, looking for an “affordability sweet spot” between top-end and income-restricted housing, according to Davis. It’s eyeing the state’s MBTA Communities housing production law. The firm created a map that rates the cities and towns subject to the law based on how likely they are to create meaningful development opportunities.
“I am highly confident we will” make investments based on the MBTA law, but “we just haven’t done so yet,” Davis said.
When it comes to industrial, Davis is interested in “more of a boutique offering,” not something on the scale of a million-square-foot distribution facility, he said. A few Boston-based, industrial-focused real estate investment firms have recently had success raising funds, though demand for industrial space has cooled in comparison to a Covid-era frenzy.
One property type conspicuously not listed among its stated areas of focus? The struggling office sector. The firm moved away from office investments about a decade ago, but Davis would not rule out returning to that well again given the real estate becoming available at a deep discount.
“It is impossible to ignore what has been described as what is — or at least could be — a generational buying opportunity,” Davis said.
The fifth fund closed at $877 million, with an additional $100 million in a related investment vehicle.