In September 2015, Brookfield-based MLG Capital bought the third-largest apartment building in the Twin Cities, Crossroads at Penn.
After spending $41 million on the property, MLG Capital invested another $14 million on the common areas of the building and the 698 units to bring them up to date.
After the renovations, one-bedroom rents at the Crossroads property went from an average of $730 a month to $1,030. Tenants from neighboring apartment complexes built 30 years after the MLG property was constructed began moving to the Crossroads because they were saving about $400 a month on rent by living in the older building, even after the rent increase.
For the past 30 years, this is what MLG Capital has done: buy distressed properties, improve them and move on.
“After we fix a problem (such as a high vacancy rate), we sell,” said Tim Wallen, chief executive officer of MLG Capital. “We’re likely to hold on to multifamily or industrial a little longer, seven to eight years. But with retail or office, we sell. We don’t want to take a chance that we’ll lose a tenant and then be back to square one.”
MLG Capital is a private equity firm that specializes in investing in small and mid-sized private real estate properties. In 2000, the company separated from NAI MLG Commercial, the Milwaukee-based real estate brokerage firm.
Over the past three years, MLG Capital has hired more than 100 people, and now has 38 working in Brookfield and more than 200 working in Dallas.
The company recently introduced a $150 million fund to new and existing investors, with targeted net returns of 13 to 15 percent per year. MLG Capital is planning to roll out a $300 million fund within the next 24 months that is targeting new investors.
“You can’t buy real estate without the cash to do so, so we are planning to roll out a series of funds every 24 months or so to give investors an opportunity to invest,” Wallen said. “We’ve always been buying local; it just ebbs and flows when we have an opportunity to do so. I want people to invest in our community, but to take money away from the stock and bond market to do so.”
MLG Capital also has opened a private equity firm, which is where the majority of the employment growth has come from. The company reviews on average 50 to 55 deals per month across several targeted markets.
With its last two acquisitions, MLG Capital has turned its focus to Wisconsin.
Like the Minneapolis apartment complex, Wallen saw a similar opportunity recently in Waukesha.
In February, MLG Capital purchased the West Grove Apartments in Waukesha for $36.5 million. The company plans to make upgrades to the 476-unit complex, which hasn’t been renovated since the buildings were constructed about 30 years ago.
The updates MLG is planning in Waukesha include a new community center, a half-court basketball court, shuffleboard and a grilling area.
Once complete, the property, located on just more than 46 acres northwest of West Sunset Drive and West St. Paul Avenue, will be rented for higher rates.
The other Wisconsin deal was in Pewaukee, when MLG Capital purchased a neglected 69,530-square-foot strip mall on West Capitol Drive for $1.8 million in January.
Unlike the apartment complex, which the company might keep in its portfolio for five to 10 years, MLG Capital will find tenants for the strip mall property and sell it. The Pewaukee property will not stay on MLG Capital’s books for long, Wallen said.
“We only paid about $25 per square foot and I felt safe buying at that price,” Wallen said. “We have identified an asset where I am confident we can solve the problem, which in this case is vacancy. I’m not wild about retail, but I buy opportunistically.”
Despite MLG Capital celebrating its 30th anniversary this year and Wallen running the company since 2000 (after joining the group in 1989), he said not many people understand what the group does, locally.
“When you get into the wild, Wild West of private real estate investing, it is hard for people to invest in other markets, so we have created a vehicle for people to buy all over the country, and become diversified,” Wallen said.
