Arrowpoint Multifamily Fund I, which we call AMFI, is our closed-end multifamily fund, launched in 2022 to commit capital ahead of deals instead of raising equity one syndication at a time. It is part of how we manage the LP relationship across our portfolio. We targeted 6 to 8 assets over a roughly 10-year term. Four years in, we hold five, with room for one more before the fund closes to new acquisitions.
Key Takeaways
- We built AMFI to have capital committed before we go under contract, not after. Raising equity deal by deal means chasing capital on the seller's timeline. A committed fund removes that pressure.
- We launched in 2022, right as the debt markets turned. The Fed started raising rates sharply within months of our first close, and cap rates did not move at the same pace.
- A closed-end structure puts us on a clock. We have to sell within the fund's roughly 10-year window. Outside a fund, we can hold as long as an asset performs.
- Our first fund deal came with a $5 million preferred equity position we would not use again. We consider it unviable for how we want to operate going forward.
- We have not sold anything out of AMFI yet, so we have no exit to point to. Every asset in the fund is performing. We just cannot call it a finished track record yet.
- We are not raising a second fund right now. Equity is easier to raise deal by deal in this market than for a blind pool, so that is where we are focused.
We have closed 26 syndications over 22 years in the Merrimack Valley and have never called capital from an investor to cover a shortfall. AMFI is our first fund vehicle, four years into a ten-year term, and it has taught us what a closed-end structure asks of a sponsor that a single-asset deal never does.
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What AMFI Is and Why We Chose a Closed-End Fund
Closed-end fund: a fund structure that raises a fixed amount of capital up front, deploys it into a defined pipeline of assets, and operates on a set term before winding down and returning capital. An open-ended fund, by contrast, can keep raising and deploying capital indefinitely and gives the sponsor more flexibility on when and how to exit individual assets.
We wanted AMFI mainly for competitive reasons. Going into an acquisition with capital already committed puts us ahead of a sponsor who still needs to find equity after signing a purchase and sale agreement, and it took the legwork of raising capital deal by deal off our team. The thesis did not change from our deal-by-deal approach: value-add multifamily with upside from management efficiencies, rent collections, and expense control, the same playbook we have run for 22 years across the Merrimack Valley investment thesis. We started small and geared it toward friends and family first, partly to test whether a fund fit our model before we scaled it further.
Why 2022, and What Happened When the Debt Markets Moved
We launched AMFI in 2022. In hindsight, it was terrible timing: the same year the debt markets blew up.
Rates had been near zero going into 2022. Within months of our first close, the Fed started raising rates sharply and kept raising them. Looking back now, rates in 2022 were actually still better than where they sit today, so the timing was not as bad in absolute terms as it felt at the time. The real problem was that cap rates did not adjust to match rising interest rates right away, and underwriting against unfavorable cap rates and rising debt costs at the same time does not pencil.
The first deal we locked into under the fund came with a preferred equity partner, a $5 million position we brought in to get that deal done.
Preferred equity: capital that sits above common equity in the payout order and earns a fixed return before common equity investors see distributions, in exchange for giving up upside participation. It fills a capital gap without diluting common equity as much as another common equity partner would. We now consider it unviable for how we want to run our deals, and we would not do it again.
When rates started climbing, we did not have a lot of options. We were mid-rollout on the fund and had to keep underwriting against a moving target. We told our LPs plainly that we were basing our underwriting on the current environment and pursuing deals that made sense under those conditions rather than the assumptions we started with.
What a Closed-End Structure Demands of LPs, and of Us
The main restriction is the timeline. We have to sell within the fund's window, pressure we do not carry on assets we hold outside a fund. Real estate is a long-term game for us, and if we could hold an asset indefinitely, we would, returning capital through a cash-out refinance rather than a sale. We are doing exactly that right now on a property outside AMFI, coming up on our five-year mark: if it appraises where we expect, we plan to refinance into a new agency loan, return 100 percent of investors' capital, and keep them in the deal with healthy ongoing cash flow, consistent with our conservative approach to debt. A closed-end fund does not give us that option, so for LPs, liquidity depends on our exit timing rather than an ongoing hold with refinance options along the way.
Where AMFI Stands Today
We are four years into what we expect to be roughly a ten-year fund life, with about six years left. Our original target was 6 to 8 assets; we hold five, with room for one more, so we expect to land at six. We have not sold anything out of AMFI yet. Every asset is performing, but without a completed exit it would be premature to call the fund a success or a failure. We are in a wait-and-see period until we produce our first sale.
We do not have plans for a second fund right now. We want more history in AMFI, including at least one exit, before we go back to investors with a second fund structure.
What We Would Do Differently
If we launched a fund today, we would not use preferred equity as a capital partner again. We would also lean toward an open-ended structure over a closed-end one. The forced-sale timeline is the part of AMFI we like least, and an open-ended fund would let us handle an exit through a 1031 exchange instead of an outright sale in some cases, rolling equity forward and deferring the tax hit for investors who wanted that option.
Buying out the preferred equity position is possible in theory, through a recapitalization that brings in additional limited partners or a larger check writer to retire the $5 million position with common equity. We have not done that, but it is on the table. Going forward, we are sticking with our deal-by-deal syndication model, since it is currently easier to raise equity for a single asset than a blind pool fund.
Frequently Asked Questions
What is a closed-end real estate fund?
A closed-end real estate fund raises a fixed amount of capital up front and commits it to a defined pipeline of acquisitions over a set term, typically 8 to 10 years, before winding down and returning capital to investors. Unlike an open-ended fund, it cannot keep raising capital indefinitely, and the sponsor is generally required to sell the underlying assets within that window. That fixed timeline is the main trade-off against a deal-by-deal syndication, which raises capital for one property at a time with no mandated exit date beyond the business plan.
What is the difference between a closed-end fund and deal-by-deal syndications?
In a deal-by-deal syndication, we raise equity for one property at a time, after we have it under contract, and hold it as long as it makes sense. A closed-end fund like AMFI raises a pool of capital up front and deploys it across multiple acquisitions inside a fixed term, so capital is committed before we identify every deal, but the fund is also mandated to sell and return capital within that term. See how we structure deal-by-deal syndications for more on that approach.
What is preferred equity, and why would a sponsor avoid it?
Preferred equity sits above common equity in the distribution order and earns a fixed return before common equity investors are paid, without taking an ownership stake the way common equity does. It fills a capital gap quickly, but adds a layer of fixed obligation ahead of the sponsor and common LPs. We used a $5 million preferred equity position on our first fund acquisition and consider it a structure we would not use again.
Why hasn't Arrowpoint launched a second fund?
Two reasons. Market conditions right now make it easier to raise equity for a single deal than for a blind pool fund, so that is where investor appetite is pointing us. And AMFI has not produced an exit yet, so we would rather have a completed sale and a real return to show before we go back to investors with a second fund.
Where to Go From Here
If you are an accredited investor and want to talk through where we stand on capital raising, please contact us.
David Lamattina
President & CEO
About Dave Lamattina
Dave Lamattina is the founder and CEO of Arrowpoint Properties, a vertically integrated multifamily owner-operator based in Lawrence, Massachusetts. He has been acquiring and operating multifamily assets in the Merrimack Valley for over 22 years, with 1,100+ units acquired and exited and a current portfolio of approximately 850 units valued at around $230 million. Arrowpoint has completed 26 syndications with an average net IRR of 32% and a 2.50x equity multiple.
