Dallas private equity fund Common Ground Capital announced the launch of its second real estate investment fund with a target raise of $50 million, along with the formation of an in-house property management division.
Common Ground says it builds wealth through acquiring, renovating, leasing, and exiting well-located residential assets. The firm currently owns and operates 45 single-family rental properties throughout the Dallas-Fort Worth area. With its second fund, it aims to acquire over 300 more—initially in DFW before expanding its portfolio across Texas and the U.S.
Dallas Innovates profiled the company’s managing director, Ty Lee, in 2021. He told us he launched Common Ground because other asset classes didn’t appeal to him.
Retail? “Panicky, volatile,” Lee told us in 2021. Office? “I think there’s a lot of question marks there.” He loved industrial and multifamily, “but you really have to be the developer, not the acquirer, because they’re trading at such a low cap rate.”
The biggest thing that drew Lee to single-family rentals was demographics—and that still holds true today.
“The demographic fundamentals of single-family homes remain strong for the asset class, as there is still a need for homes,” Lee said in a newly released statement. “According to USA Today, as of Oct. 2022, the U.S. is short 2 to 6 million homes. Lack of homes coupled with rising interest rates is making it difficult for builders to finance projects and consumers to afford mortgage payments.”
Following a successful $9M first fund, second fund has bigger aims
Common Ground notes that its first fund exceeded fundraising, acquisition and rental income underwriting expectations, successfully executing a $9 million capital raise in 12 months while being oversubscribed.
Now, aiming to raise $50 million with eyes on Texas and national expansion, Lee still sees the local market as a good starting place.
“Dallas Fort-Worth’s central location, diverse economy and strong labor market make it a prime location to continue acquiring homes,” Lee said. “The city’s long-term growth has fueled demand across many asset classes, especially single-family and it appears to be a trend that will continue.”
Proprietary criteria helps Common Ground select homes
Common Ground said that the limited supply of affordable entry-level single-family homes, stricter requirements from lenders, higher interest rates, the desire for flexibility, and the convenience of offloading maintenance have made single-family rentals an attractive option for large portions of the home-seeking market, creating an opportunity for Common Ground Capital’s second fund.
It said the second fund will target single-family homes based on specific and proprietary criteria. Common Ground Capital’s strategic plan is to acquire 319 homes with a projection of 17%-plus internal rate of return for investors upon exit.
New division Common Ground Management will oversee portfolio
The company said it realized the opportunity to expand its business model with an in-house property management division, Common Ground Management, to self-manage its portfolio of properties across both funds as well as offer the service to other owners.
Common Ground said that with its market projections of the second fund acquiring 15 to 20 homes per month, the company management’s in-house team will self-manage its homes and provide hospitality-like client service for every single-family resident in its portfolio in addition to providing property management services to other owners.
Having an in-house property management team allows the firm to conduct better financial reporting, reduce costs, maximize NOI and achieve renewals, providing added value for investors in both funds, the company said.
“In a market like Dallas, there are many players in the property management space, but they aren’t focused on providing great service,” Lee said. “Our team of local experts is passionate about providing the best tenant experience. Responsiveness, proper communication and minimizing costs are core to our approach.”
Common Ground Capital said its operating team draws on extensive institutional experience along with a solid track record in operations, finance, development, and design.
In addition to Lee, Common Ground Capital’s executive team includes enterprise technology veteran and investment banker Christian Mack, who was managing director and founder at Lotus Funds, as well as Richard Paek, founder and CEO of Allied Lube and a Jiffy Lube franchisee running 125 stores in four states including growing one of these locations into the third largest Jiffy Lube franchise.
The new Common Ground Capital fund two is administered by Cobalt Fund Services.
Leveraging a trend of leasing homes
Common Ground Capital operates on the idea that single-family rentals are becoming an attractive housing option, especially among younger adults.
In our 2021 story, Lee talked with Dallas Innovates about the genesis of his business.
“I looked at the demographics of our country, in particular the Millennials—how big they are, what their lives are like, and what they are going to be. Then when you layer on Gen Z—which is the third-largest group—a lot of them are in college or about to wrap up college,” Lee said at the time.
He said the statistic that sealed it for Lee was from Arbor Realty Trust: 43% of Gen-Zers would prefer to rent a single-family house after they graduate from college instead of an apartment.
“That blew my mind,” Lee said, “because when I was graduating college, I wanted to be downtown in the core in an apartment and live a walkable urban life. But something has shifted in the mindset of these demographics to where they’re wanting houses and yards. They’re wanting to have dogs and space. So when you combine all the data points together, I just fell in love with single family. I think there are a lot of antiquated things that can be done better.”
“That’s when I decided that this was going to be my focus,” he said.
Quincy Preston and David Seeley contributed to this report.
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