Sometimes, familiarity breeds contempt.
For Dwight Dunton, founder and CEO of Alexandria, Virginia-based Bonaventure, it brought comfort. Dunton’s firm, an alternative asset manager focused on the development, construction and property management of multifamily communities in the Mid-Atlantic and Southeastern regions, previously managed the Pinnacle Apartments and competed against Magnolia Chase for more than a decade.
So when the two properties came to market in the summer, buying them was a no-brainer. “We thought we knew them inside and out from a tactical level,” Dunton said. “We had a really good feel for those assets.”
The 296-unit Pinnacle Apartments in Hampton, built in 2016, offers one-, two- and three-bedroom units and amenities that include a resort-style pool and 24-hour fitness center. The 185-unit Magnolia Chase Apartments in Virginia Beach, Virginia, built in 1999, features one-, two- and three-bedroom units. Its amenities include a pool and lounge area, a 24-hour fitness center, a playground and a clubhouse.
Bonaventure also intends to acquire 24 additional units currently under construction later this year at Magnolia Chase Apartments. The community is adjacent to three other multifamily communities the company owns and operates — The Cascades, Infinity at Centerville Crossing and Magnolia Run Apartments. With the acquisitions, Pinnacle now owns 28 properties in Virginia.
Creative deal structure
It takes more than familiarity to make a deal work. Both Pinnacle Apartments and Magnolia Chase Apartments came with financial advantages — mainly, they have underlying loans with favorable interest rates compared to today’s market. Bonaventure could take over that existing debt with a UPREIT (umbrella partnership real estate investment trust) deal structure, which allows property owners to exchange their property for share ownership in the UPREIT.
“We felt there was some additional value because we also took over the loans,” Dunton said. “Using existing loans and UPREIT allows us to get creative and maximize the value on top of them being assets that we would love to own for a long time.”
Some owners need more than cash out of a deal, and Bonaventure is positioned to help them work through their issues.
“There are lots of assets we want to own,” Dunton said. “In this market, we're focused on assuming fixed rates and working with owners who selling for cash doesn't necessarily solve their problems. They need more creative solutions because of their partnership constraints or tax positions.”
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