Saturday, January 15, 2011

RE investment firms finding apartments as the way to go

"While the real estate investment market is still shrugging off some doldrums, investors are increasingly turning to buying apartments.

A spate of local apartment sales closed at the end of the year. Among the recent transactions are Korman Communities selling two apartment complexes in Northeast Philadelphia for $55.5 million, Capmark Financial unloading a property in Philadelphia for $7 million, Korman Residential buying the Woods complex in Ambler for more than $30 million, and Morgan Properties paying to buy out two partners’ interests in 76 apartment properties with 15,000 units valued at $1.5 billion.

Some owners have also decided now might be a good time to seize on the enthusiasm for apartments. For example, Red Rocks Group has the Coventry at Glenn Mills on the market and O’Neill Properties Group is seeking to sell Londonbury in Conshohocken.

Interest in multifamily apartments has gained favor for several reasons. It’s one of the few areas where financing can be arranged through government entities Fannie Mae and Freddie Mac. As homeownership has gotten out of reach for some people because of job loss, cuts in pay or bad credit, renting has become more common. Investors also view it as a stable asset for the future as opposed to office space, which still suffers from a lack of job growth.

The Philadelphia area apartment market also continues to be robust. Class A vacancy rates are down to a tight 2.7 percent compared with 5.4 percent at the end of 2009, according to Delta Associates year-end research. The overall market is also seeing low vacancy rates. In Center City, it stands at 2.4 percent (down from 4.7), the Pennsylvania suburbs are at 3.1 percent and South Jersey fell to 2.3 percent from 6.5 percent at the end of 2009. Rent growth is also strong though ranges from a 17 percent jump in Center City to a 6.5 percent in the suburbs, according to the Delta data.

The market conditions have also helped drive up investor interest.

Rushwood, a 392-unit complex at 10825 E. Keswick Road, sold for $34 million, and Winchester Walk, which has 318 units at 2600 Welsh Road, traded for $21.5 million. Korman Communities developed the properties 60 and 40 years ago, respectively, and both were fully occupied at the time of sale. Greystar Real Estate Partners of Charleston, S.C., bought the complexes.

While they were sold as part of estate planning purposes, bringing them to market had a lot to do with timing, Iman said. “There were enough signs of a recovery to be out at the beginning of the year,” she said. “I think being one of the first large offerings out there, we received a significant amount of response. We spoke to over 350 investors.”

What also helped is Philadelphia’s multifamily market is constrained. It has high barriers to entry and few new apartments are constructed annually, and Greystar was able to enter the Philadelphia area with a foothold of more than 700 units.

Professional Realty Advisors, saw “tons of interest” for the Axis, a 136-unit apartment building at 20 S. 36th St. in Philadelphia. More than 220 investors looked at the property and 22 offers were made, Mattson said.

The building caters to Drexel University and University of Pennsylvania students. Once called the Stratum when it was first converted from the Divine Tracy Hotel, the property had been 74 percent occupied when it was foreclosed up by the lender. Altman Management Co. of Fort Washington bought the property, which was 95 percent occupied at the time of the closing.

In another deal, Korman Residential picked up the Woods, a 321-unit complex at Butler Pike and Susquehanna Road in Ambler, from RREEF. It has 27 garden-style buildings, a clubhouse and a single-family home that is also a rental on 27 acres. Its occupancy is at about 95 percent. The company bought it to get into an area of Montgomery County it wanted to have a presence in for a while.

The biggest transaction came from Morgan Properties of King of Prussia. It bought out its institutional partners’ interest, giving Morgan full control over nearly all of its portfolio. How much Morgan paid wasn’t disclosed but the real estate is valued at $1.5 billion.

The buyouts took place in three separate transactions during the fourth quarter and were funded with “internal equity sources,” the company said in a statement without elaborating. Morgan Properties now owns 100 percent interest in 94 of the 99 properties in its portfolio."

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