Owning one multifamily building can be a great investment for an individual — but building upon that success can be challenging, especially in today’s environment. The cash flow is great, but creating real wealth through the acquisition of more properties requires at least some wealth. In the current environment, equity needs are higher than ever before, and banks tend to favor other large financial institutions. Capital raising can be time consuming.
Derrick Barker, founder and CEO of Atlanta-based Nectar, has devised a way to access the cash fl ow of one building to allow the owner to invest in its own building or to acquire another in what he says is a faster, more flexible way.
“Ultimately, we’re able to give people liquidity,” Barker said.
Barker has been there. In March 2022, Barker and his wife Brittany Moseley were in contract to buy an apartment complex in Downtown Los Angeles, when the lender pulled the financing. Instead, he had the idea of getting 12 to 18 months of cash flow from his existing multifamily assets to finance that deal. That was the seed of Nectar, which gives established, but small, real estate entrepreneurs — many of them persons of color — who own stabilized properties the ability to expand their portfolio with cash flow-based financing. Nectar provides the working capital financing without the borrower raising equity from other investors.
Barker began his real estate career while still a student at Harvard University in the mid-2000s, starting an investment club and then purchasing properties with dormmates and financial backers beginning in 2008. After graduating, he spent three years trading securities at Goldman Sachs, while continuing to acquire properties in his native Atlanta, eventually building a 500-unit portfolio.
Moseley, herself a Harvard graduate with a degree in economics, who had been running the Women’s Top division at Abercrombie & Fitch, joined Barker in the real estate field when he left Wall Street behind to focus on rehabbing real estate full-time. The two grew their personal portfolio to more than 4,700 units and $400 million in value. But they hit a wall in 2020.
“We got to a point where was difficult for us to buy real estate,” he recalled. “The pricing was more aggressive than we could make work. There were a lot of outside buyers; people were paying cash. We couldn’t do it.”
The pair had stabilized, cash-flowing assets, but were not large enough to obtain credit from major financial firms.
“You’ve outgrown your friends and family, but you’re too small for the institutions,” he said. “If you have a portfolio of 25 properties, there were not good credit options for entrepreneurs.”
Nectar’s typical deals range between $200,000 and $4 million and currently are funding medium-sized apartment complexes and self-storage facilities, as well as small mixed-use developments. The loans are amortized over up to five years and are structured as preferred equity.
“We are typically going to be more expensive than a first mortgage,” Barker noted. Rates are in the double digits and Nectar’s financing is subordinate to the mortgage.
But this can be attractive right now as pandemic-era permanent debt has a low interest rate.
“They may just need $1 million to finish the project or to buy another,” Barker observed. “It’s cheaper to get the money here.”
For example, if an owner has a $20 million property, with a $10 million loan at 4%, that additional $1 million loan at 14% still is more affordable than refinancing at today’s higher rates.
Speed also is a Nectar benefit, Barker continued.
“We typically take seven to 10 days,” he noted, where other refinancings can take 45 to 60 days. The result is that 35% of Nectar borrowers are repeat customers.
There are some sectors Nectar doesn’t touch.
“I’ve never done office, really, although I do think there is great opportunity,” Barker said. “We also don’t do shopping centers. We have done a lot of multifamily, self-storage, hotel and mixed-use.”
Taking advantage of the current climate, clients are looking for over-leveraged properties, especially in hot markets in the Southwest, including Austin, Atlanta, Charlotte and Dallas.
“Now is a great time,” Barker observed. “If you don’t have a lot of debt, there are opportunities in the market to buy and invest in properties that were overleveraged and were not prudently operated. There are good, discounted prices to a couple of years ago.”
Nectar also has an investment fund that pays 12% annually, backed by a diversified group of sponsors — as the pool of properties are priced to withstand even a 15% drop in value.
“We finance properties with low leverage, then we package the deals and sell them to investors,” he explained. “A lot of investors want cash flow, and every quarter we make distributions. The last was the ninth consecutive quarter we made a distribution to all our investors.”
The result is growth he expects to continue, even as he helps other entrepreneurs build their dreams.
“2023 was a banner year,” he said. “And 2024 is better than 2023.”
