In a marketplace where investors are desperately seeking Class A portfolio transactions, Flournoy Development in Columbus, Ga., has 8,330 Class A apartment units (all built since 2001) on the block.

Thomas H. Flournoy, president and chief operating officer of the company, which ranked No. 9 on Multifamily Executive's list of Top 50 Builders in 2009, says the properties are available for sale or joint venture, though he would prefer to recapitalize the portfolio by bringing in a joint venture partner. The portfolio includes 25 properties in Texas, Oklahoma, Tennessee, Georgia, Alabama, South Carolina, Kansas, and Florida, divided into three groups.

Flournoy chose Bank of America/Merrill Lynch (BoA/ML) to market the portfolio, which led to some speculation that the bank was forcing the sale. Instead, Flournoy says that it wants to recycle the proceeds from the sale into a 3,000-unit development pipeline (the company has 1,000 units currently under construction).

The company began the sales process in April, when it saw cap rates continue to slide as rental fundamentals improved. “We tried to lead the curve being the first one in the market,” Flournoy says. “If this is successful, and it trades at a good number, I think there will be others who follow.”

W. Merritt Lancaster, the company’s chief investment officer, said the strong demand story for multifamily over the next few years played a big role in the decision. Basically, he thinks the company can better capitalize on that demand by selling now. “As primarily a developer and builder, it made sense for us to deploy our capital into new investments,” he says. “You could see great returns in what we already own, but you could see superior returns if we redeploy [the capital]. So we’re watching the market for an opportunity to see if we can exit what we have.”

Recap Tactics 
Flournoy didn’t use BoA to market the deal because the bank was forcing some sort of firesale or forced liquidation situation. In fact, New York-based research firm Real Capital Analytics says Flournoy only has three properties on their servicers’ watch lists, and none of those are with BoA.

Flournoy adds that the company, in 43 years of operation, has never turned the keys back on a property. “If we were just going to sell a portfolio, I don’t think you would go to BoA/ML first,” Flournoy says. “We picked them because we wanted to find the best joint venture partner to do something with. That’s the reason we picked the 800-pound gorilla in the business market of recapailtization and joint ventures.”

The main reason Flournoy says he’s keeping the option to sell on the table? His investors. “If you’ve got investors, you have to be fair to them,” he says. “You get the pricing and you make the determination based on the pricing. To just go out and recapitalize, you never know if the investor is getting a fair shake for his money.”

Strong Interest
While Flournoy wouldn’t release the names of the companies that are finalists, he did indicate there was heavy REIT interest in the portfolios. That doesn’t surprise Haendel St. Juste, an analyst with Keefe, Bruyette & Woods (KBW). “The logical public buyers of all or pieces [of the portfolio] would be Mid-America Apartment Communities, Colonial Property Trust, and Camden Property Trust, but given the tertiary markets and locations, Mid-America is the most logical ‘fit,’” he says.

But Ben Thypin, senior market analyst at Real Capital, says that on this type of portfolio there will be interest from a number of institutional sources. So far, he says the only portfolios of that size on the market lately have been lower-level properties that weren’t as attractive to investors. “There’s a lot of demand for this type of product out there,” he says. “It looks like they are just seeing if they can take advantage of a pretty good market for Class A multifamily right now.”

Flournoy says he’s weighing finalists now and expects to make a decision by mid-September.