MELILLO EQUITIES pursues opportunities for our investors that capitalize on the development, repositioning and/or recapitalization of properties in three of New Jersey’s most desirable, transit-oriented suburban markets - namely Peapack & Gladstone, Far Hills, and Bernardsville. With access to a variety of discretionary open-end and closed-end funds, our investments span the full risk-return spectrum from core to opportunistic. Targeted asset classes include residential and commercial, as well as emerging categories such as affordable housing, self-storage and shared office. Once invested, we generate outsized returns through unwavering dedication to our investment thesis, which is underpinned by the geographic concentration of our portfolio assets.
Two arbitrage opportunities serve as the cornerstone of our investment thesis:
PRICING DISPARITIES
Within the last decade, revitalization efforts spearheaded by real estate firms have been quite impactful; cities once constrained by inadequate parking, dated infrastructure and limited amenities are now being revitalized into thriving urban centers. This resurgence has led to increased enthusiasm for urban living, further solidifying attractive profit margins for participating firms. However, capital continues to be disproportionately allocated to larger urban centers, while smaller submarkets remain capital-stricken. This is largely due to firms’ inability to identify scalable investments, along with their reluctance to navigate the diverse sets of ordinances that govern each town. The resulting disparity has meant that larger Metropolitan Statistical Areas (MSAs) have become oversaturated while overlooked submarkets with comparable underlying characteristics continue to provide ample investment opportunities.
DICTATING MARKET TRENDS
At Melillo Equities, we define critical mass as the point at which a firm can realize significant competitive advantages derived from economies of scale and scope, with the ability to dictate market dynamics. Despite the advantage conferred by such a position, most firms encounter two key challenges that inevitably hinder their progress. First, binding term limits force divestiture upon a fund’s maturity, which ultimately precludes systematic AUM (Assets Under Management) growth. Secondly, real estate firms frequently disregard the importance of geographical concentration, amassing disconnected portfolios that account for a relatively small percentage of the overall supply within any given market. We believe that any viable roadmap for achieving critical mass begins by dismissing these two common but counterproductive practices and committing to long-term, open-ended investment structures within supply-constrained submarkets.
ACQUISITION CRITERIA
MELILLO EQUITIES seeks investment opportunities that meet or exceed the following criteria:
QUALITATIVE CRITERIA
We actively seek opportunities that meet the following qualitative investment criteria:
- Positive Demographics Trends
- Educated Workforce (Occupational Specialization)
- Social Heterogeneity
- Transit Orientation
- Existing Public Infrastructure
To safeguard pricing controls, we continue to monitor the following factors that constrict future supply:
- Municipal Historic Boards
- Restrictive Zoning Ordinances
- Geographical Constraints (waterways, slopes, etc.)
- DEP Jurisdiction
- Lack of Scale
QUANTITATIVE CRITERIA
- Asset Class Agnostic: Multi-Family, Office, Retail, Self-Storage
- Investment Risk: Value-Add and Opportunistic Opportunities
- Investment Timeline: 1.5 to 6.0 years
- Transaction Size: > $1 million
- Commercial Lease Form: NN, NNN, Modified Gross
Target Investment Analytics:
- 65% LTC Debt Financing (Acquisition, Construction)
- +18% Internal Rate of Return (IRR)
- 1.8x Equity Multiple (EM)
- +7% Stabilized Yield on Cost (YOC)
ESA
Our IMPACT INVESTING ethos is rooted in long-term sustainability and affordability.
ENVIRONMENTAL PRESERVATION
Ensure protection of watersheds, viewsheds and natural lands by intentionally reutilizing existing infrastructure within suburban town centers.
SOCIAL RESPONSIBILITY
Advance socioeconomic diversity by increasing access to affordable housing, expanded employment opportunities, public open spaces, and mass transit.
ARCHITECTURAL CONSERVATION
Protect cultural heritage by preserving buildings that exude beauty, reflect local vernacular, and convey strong sense of place.
COMPETITIVE EDGE
CONSISTENT OUTPERFORMANCE in an ever-changing marketplace relies on our strict adherence to three fundamental principles:
COLLABORATIVE
PARTNERING
We actively cultivate relationships with local officials and community leaders to provide guidance during all phases of development. These collaborative partnerships help ensure a harmonious process that engages all stakeholders and creates proprietary opportunities otherwise unavailable to competitors.
CRITICAL
MASS
Our ever-growing footprint within targeted markets draws us closer to achieving “critical mass” - the pivotal moment at which a firm can reap significant competitive advantages derived from economies of scale and scope, ultimately resulting in the ability to dictate market dynamics.
EXIT
STRATEGY
Smaller suburban markets tend to be relatively less liquid than their larger urban counterparts. Our investment platform helps to alleviate this concern by providing additional liquidity through our various Core Funds into which stabilized investment assets are sold.