Cottonwood, Mandel Group Agree to $600 Million Multifamily Merger

Cottonwood Communities Inc. has agreed to merge a Mandel Group apartment portfolio valued at more than $600 million into its operating partnership. The deal will push the nontraded real estate investment trust’s asset base to $3.3 billion and add more than 13,000 apartments across 16 states, according to the companies.

Cottonwood Residential O.P., LP, the operating partnership known as CROP, entered into a series of merger agreements on Sept. 2 with entities controlled by Barry R. Mandel and his affiliates covering 13 multifamily properties concentrated in the greater Milwaukee, Wis., area. One of the properties, Park Lafayette Towers in Milwaukee, already closed on July 30; the remaining 12 mergers are expected to close in the coming months, subject to lender approvals, member approvals, and other closing conditions. The aggregate purchase price for the properties, excluding a related acquisition of Mandel’s property management platform, is approximately $515.3 million, or approximately $519.9 million including the platform, payable in cash and CROP units.

“This transaction brings together two organizations with complementary cultures and core values and a shared commitment to acquiring, developing and managing exceptional multifamily communities,” said Barry Mandel, chairman and chief executive officer of Mandel Group. “By combining a significant portion of our portfolio and our management operations with Cottonwood, we’re creating a platform with greater scale, enhanced operational capabilities and geographic diversity in high-growth metropolitan markets.”

Daniel Shaeffer, chief executive officer of Cottonwood, said the transaction advances the REIT’s growth objectives. “This transaction not only adds high-quality properties to the combined portfolio but also brings many talented and well-trained people to our team,” he said.

Each Mandel-affiliated seller may elect to receive cash, CROP units or a combination of both, though cash consideration is capped at 50% of the total for each side of the transaction, according to the merger agreements. A combination of cash and CROP units equal to 1.5% of the merger consideration will be held in escrow for a year to secure post-closing adjustments and indemnification obligations. The deal is cross-conditioned: sellers are not obligated to close unless mergers representing at least half of the aggregate purchase price and half of the properties have closed, along with the separate acquisition of Mandel’s property management business. Either side can walk away if the transactions have not closed by Dec. 31, and a seller that terminates in favor of a superior proposal owes Cottonwood a termination payment equal to 4% of the applicable purchase price.

Concurrently with the property mergers, CROP agreed to acquire Mandel Property Services LLC, Mandel’s third-party property management platform, from MPSI Holdings LLC for a base cash consideration of approximately $4.6 million, subject to adjustment. The combined management company will oversee all Mandel assets, including properties not part of the transaction and those under development, along with third-party management contracts on 11 additional properties totaling 2,346 units, according to the companies. Mandel will grant CROP a revocable license to use the Mandel name in the property management business, and most of Mandel’s site associates and corporate management staff are expected to be retained. Under a side letter agreement, Barry Mandel will also join Cottonwood’s advisory board and is entitled to observe board meetings, without voting rights, for at least three years following closing.

Cottonwood expects to assume or incur additional indebtedness of up to $478 million in connection with the Mandel transactions and has agreed to a term sheet with an unnamed financial institution for a $250 million net-asset-value lending facility, the company said.

The company is separately continuing to raise capital through a private placement of Series 2025 preferred stock: between Aug. 3 and Sept. 2, Cottonwood sold 287,319 shares for gross proceeds of approximately $2.9 million, bringing total shares outstanding in that offering to 12,517,571 as of Sept. 2.

Jones Lang LaSalle Securities LLC is serving as financial adviser to Mandel on both transactions, and Robert A. Stanger & Co. Inc. is advising the Mandel-affiliated sellers.

Following the transactions, Mandel will continue to operate independently, retaining ownership and asset management of approximately $900 million of assets and continuing to pursue new development opportunities. Once the mergers close, Cottonwood will hold a gross asset value of $3.3 billion across 13,400 apartments in 16 states and 21 markets, up from $2.7 billion in total assets across 48 multifamily investments in 18 markets as of June 30, according to the company.

Cottonwood Communities is a publicly registered, nontraded, NAV-based perpetual-life REIT focused exclusively on the multifamily sector, sponsored by Cottonwood Communities Advisors, LLC and headquartered in Salt Lake City. Mandel Group Inc. is a privately held developer founded in 1991 and headquartered in Milwaukee, with more than $2.4 billion in residential and commercial development and acquisition activity to date.

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