At the beginning of the year, McLean, Va.-based Ketter had a market presence stretching south from the D.C./ Baltimore metro area all the way to Richmond, Va., and although the firm has management and ownership interests in North Carolina, they were strategically void between the two market geographies. All of that changed at the end of April with the seven-property, $87.9 million apartment portfolio Kettler and Washington D.C.-based real estate investment firm Federal Capital Partners teamed up to purchase from the Virginia Beach, Va., Great Atlantic Management Co.
The so-called 1,490-unit Tidewater portfolio includes garden-style apartment properties in Hampton, Newport News, and Virginia Beach, and gives Kettler immediate market cred in the region. “One of the things that appealed to us from a portfolio perspective was the ability to get into a market in such a big way,” says Kettler Management president Cindy Clare. “This gives us immediate volume.”
Despite the portfolio being brokered, Kettler and FCP were still able to acquire the assets below replacement costs, and the companies plan $7.7 million in value-add improvements, according to FCP managing partner Alex Marshall. And like Kettler, FCP was interested in making a big market splash.
“We’ve been targeting the Tidewater market for some time and had a bias towards entering the market with a portfolio purchase to garner critical mass, management economies, and an instant market presence that we can build a brand around,” Marshall says. “The portfolio is well built, '70s and '80s vintage properties with good visibility in growing submarkets, and we see the ability to improve operating performance through aggressive management and targeted capital improvements.”
Fellow D.C. multifamily-based investor/operator the Bainbridge Cos. also closed an apartment portfolio last month, teaming up with Starwood Capital Group Global to purchase a seven-property portfolio of communities in Virginia and Maryland, which adds 1,626 apartment units to Bainbridge’s market heft in the D.C. region. Starwood and Bainbridge were able to approach an unidentified seller off-market through a business intermediary in order to propose and close the deal.
“By acquiring the assets on a portfolio basis, we were able to provide a one-stop solution for the seller, quickly grow our footprint in the Washington, D.C., multifamily market, and deploy a sizable amount of equity capital through a single opportunity,” says Starwood spokesperson Tom Johnson. “We have sought to develop an increased presence in the D.C. metro area multifamily market and this investment provided us with a great entrée to be able to do so.”
Both portfolio buyers say equity investor interest in deploying larger chunks of capital coupled with apartment operator interest in market positioning makes additional portfolio deals likely by the end of 2011. “There are certainly buyers out there for portfolio deals,” Clare says. “Obviously it depends on the assets, depends on the portfolio, and it also depends a lot on the timing of the buyer, but right now there is a lot of equity out there chasing multifamily, so it makes sense that there will be portfolios to [sell into that demand]. According to Johnson, Starwood will show preference towards portfolio deals and expects an increasing volume of trades as more and larger transactions become available.
“We know of several portfolios that have closed, are actively being marketed or are scheduled to close,” Marshall agrees. “There seems to be pent-up demand for product in our markets that is helping to drive bulk purchases.”