Perhaps the most talked about deal of 2012 was the Lehman–Bank of America–Barclays buyout of the Archstone portfolio. After all, the deal was worth a rumored $9.4 billion and transferred a controlling stake in more than 67,000 units across the country.
In case you missed it, Archstone was first bought by Lehman just prior to the bank’s collapse. When Lehman did finally fail, it was forced to sell 26.5 percent of the company to a joint venture between Bank of America and Barclays to pay off some of its debt.
As of July, Lehman repurchased the remaining stake in the company and has been selling off Archstone’s assets to recoup some of its financial losses ever since. And thrown into the mix was Equity Residential, which made an ultimately unsuccessful play at buying the 26.5 percent stake.
But there were many other deals this year that had a significant impact on their respective companies and markets. While they might not have approached the blockbuster status and intrigue of the Archstone deal, each was more than noteworthy in its own way.
Big Fish, Big Pond
The largest apartment REIT grew larger in the Big Apple. The Beatrice is located in the heart of Manhattan’s Chelsea neighborhood at 105 West 29th Street with spectacular views of the New York City skyline. The property was snatched up in June by the notorious grave dancer Sam Zell and Equity Residential for a price tag of $280 million. The sellers were co-developers JD Carlisle Development Corp. and DLJ Real Estate Capital Partners.
The 30-story luxury high-rise sits atop the 26-story Eventi hotel and houses 301 units with floor-to-ceiling windows sharing views of the Empire State Building, the Hudson River, and towering midtown landmarks. The deal gives Equity Residential another foothold in the thriving Manhattan apartment market at a time when rents are being pushed to historic levels. Monthly rents at the property are said to range from $2,983 for a studio to $16,795 for a three-bedroom unit. And the Beatrice was fully leased just six months after opening in August 2010. Aside from this purchase, Equity also acquired a 98-unit property on 37th Street in Manhattan in September for $84 million. That deal, a busted condo deal that opened this year, had a cap rate of 4.9 percent.
Changing Things Up
In a behemoth of a portfolio sale, Richmond, Va.–based Landmark Apartment Trust of America (LATA), which was formerly known simply as Apartment Trust of America, scooped up 21 communities with a total of 6,100 units valued at $485 million. With this transaction, part of a larger recapitalization, the company more than doubled the number of multifamily communities in its portfolio. The transaction includes exchanges in $187 million in partnership interests in LATA’s operation partnership and $16 million in cash, with the assumption of $282 million in debt on the properties. With this deal behind it, Landmark now owns 10,000 units in 17 markets and manages almost 12,000 units outside its portfolio. Before the portfolio deal, which includes communities in Alabama, Florida, South Carolina, and Texas, LATA owned 3,973 units across Georgia, Texas, Tennessee, North Carolina, and Virginia.
Things Are Looking OK
The Lincoln at Central Park in Oklahoma City, Okla., proved to be a monumental score for Philadelphia-based GoldOller Real Estate Investments when it inked a deal for the property in May at a price of $76.9 million. At $109,000 a door, the sale was the largest deal in OKC since 2008 and the largest single-asset transaction in the city’s history.
The Lincoln was built in two phases, in 2007 and 2009, and GoldOller assumed a $22.24 million Freddie Mac loan in acquiring Phase 1, while paying out cash and using fresh financing for Phase 2. The 708-unit complex comprises 17 buildings and was 96 percent occupied at the time of the sale in May. GoldOller is a 2-year-old fund affiliated with Philadelphia-based Multifamily Management Services, which owns about 30,000 properties, mostly on the East Coast.
Coming Full Circle
At $118 million, the sale of the 360 Residences is the largest financial transaction to be made so far in 2012 in San Jose, Calif. Thanks to the booming tech economy and job growth in Silicon Valley, the city’s apartment market has been among the strongest in the country the past few years. Originally built as luxury for-sale homes, in 2009, the 360 Residences quickly fell victim to the down cycle, and developer Mesa Development stopped making payments. That’s when Beverly Hills, Calif.–based Kennedy Wilson stepped in to buy the property at a foreclosure auction while it was still under construction.
Vacant, and filled with unfinished interiors, the units that were in escrow saw the bottom fall out. So Kennedy Wilson decided to convert them to apartment rentals and invested $2 million to finish the interiors in March 2011, staging the work floor by floor as leasing went on. The company converted one unit into a leasing office and also upgraded amenities such as the pool area. Thirteen months after buying the 360 Residences, Kennedy Wilson sold it to Chicago-based Capri Capital Partners. The property is currently 94 percent occupied and 97 percent leased.
In August, a joint venture between San Antonio–based Lynd and Miami Lakes, Fla.–based Florida Value Partners purchased the $200 million unpaid principal balance on a 20-property portfolio containing 3,241 units. The communities are spread out across Florida, Georgia, South Carolina, Virginia, California, Colorado, and Texas. The acquisition came in the form of a court-appointed receivership sale for an undisclosed sum. These types of distressed transactions are right in Lynd’s sweet spot, as the company has purchased more than $875 million in unpaid principal balances on distressed real estate notes since 2010. But this is just the first deal of many for the two business partners, which formed a new joint investment fund for the deal. The companies plan to do a substantial rehab to the portfolio.
The Big Get Much Bigger
Austin, Texas–based student housing giant American Campus Communities (ACC) acquired a portfolio that spans seven states for $863 million from Kayne Anderson Capital Advisors in October. The 19 student housing properties consist of 12,049 beds near universities like Michigan State, Texas Tech, and the University of Southern California, among others. The deal was the largest apartment transaction of the year, excluding Lehman’s Archstone deal, as of press time. ACC agreed to assume about $396.2 million in outstanding debt and pay about $466.6 million through a combination of cash on hand, debt from its revolving credit line, a bridge loan, and the sale of debt or stock. In fact, the company is selling 10 million shares of common stock to help fund the purchase. ACC will invest about $12.3 million in upgrades. This was the second large portfolio deal this year for ACC, which closed its acquisition of a 15-asset portfolio for $627 million from Campus Acquisitions in September.
Very Notable Mentions
Highlands Ranch, Colo.–based UDR inked a huge deal back in January when it added 710 new units to its portfolio by buying Columbus Square, a five-tower apartment complex in New York City. UDR partnered with MetLife on the deal, and the seller was a partnership of Stellar Management and the Chetrit Group, which developed Columbus Square on land it purchased from Leona Helmsley. The $630 million buy gives the company a dominant grip on Manhattan’s Upper West Side, with some of the highest rental rates (and still rising) in the country.
As the saying goes, when one door closes, another opens. This couldn’t be truer for Alliance Residential and its Broadstone Domaine community. Alliance bought the note for the property, a partially constructed condo deal, for just $19.5 million in 2010. The project was initially developed by Intracorp Seattle in 2007 and was foreclosed in October 2008 by KeyBank and LPSL Corporate Services, which said the developer owed it $20.6 million in principal and interest.
One of the hurdles the company had to overcome was the lack of amenity spaces. So, Alliance decided to convert three live/work units to a leasing office, clubroom, and fitness center, to bring the community more in line with renter expectations. After repositioning and rebranding the property, Alliance sold the 91-unit building to Essex Property Trust in September for $33.9 million, representing the first time a Seattle property that lacks a commercial component sold for more than $400,000 a door.