In a difficult transaction market, buyers who do what they say they’re going to do have an advantage.
For example, Los Altos, California-based Interstate Equities Corp. overcame other competitors to purchase three West Coast properties for $68 million because of its track record of reliability, Brendan Gibney, director of investments at the company, told Multifamily Dive.
“There were other offers, including some that were higher than ours, but ours was backed by discretionary equity, a simple approval process and certainty of close,” Gibney said. “That’s a significant advantage in this market.”
The properties IEC purchased include:
- Appletree in Campbell, California. IEC purchased the 72-unit property for $26.4 million, or $342,000 per unit, from Cambridge Management, a Bay Area family ownership group. Built in 1971, the garden-style asset sits 5 miles from Apple’s headquarters and seven miles from downtown San Jose.
- Augusta Glen in Lynnwood, Washington. IEC purchased the 121-unit Augusta Glen property through an off-market process for $28.25 million, or $233,000 per unit. The apartment community, built in 1990, is adjacent to Route 99 and near the I-5/I-405 intersection, a main north-south artery in the Seattle metro.
- Summerhill Place in Union City, California. IEC purchased the 60-unit Summerhill Place, a 2.55-acre garden-style community built in 1986, for $15 million, or $250,000 per unit, through an off-market process. The property sits in California’s East Bay.
“All three of these communities are located in infill locations with limited supply and strong demand drivers,” Gibney said. “In addition to the major value-add upside, IEC has holdings in each of these submarkets, so there are operational synergies we are able to leverage.”
Gibney said that each neighborhood has experienced surging rents that priced out much of the local workforce. “These projects undertaken by IEC will address that head-on by preserving attainable homes for the local workforce,” he said.
Upgrades and safety improvements
IEC is planning renovations and safety improvements to bring the three properties up to modern standards. The company expects to achieve stabilized yields between 6.5% and 7% on untrended net operating income.
“With Summerhill Place and [Appletree], we financed fixed-rate loans with Fannie Mae at rates well inside of our mark-to-market yield on NOI,” Gibney said. “In Seattle at Elevate Apartments [Augusta Glen], we utilized a credit facility that will take us through major exterior and interior rehab. Upon stabilization, we’ll likely take out an agency loan.”
Although the multifamily transaction market is fairly frozen, the private families who sold to IEC often have different motivations and are often “cycle agnostic,” according to Gibney.
“Sellers can be influenced by personal issues regardless of broader market conditions, which was the case for each of these acquisitions,” Gibney said.
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