With the recovery in apartment transactions, a lot of under-the-radar buyers are coming to the table, especially in the B and C asset classes. The Los Angeles-based Phoenix Realty Group (PRG) and its buying partner Englewood Cliffs, N.J.-based The Orbach Group, can certainly be counted among those purchasers.
In the past year, PRG acquired more than 3,500 apartment units, valued at $400 million, in its target markets of New York, New Jersey, Connecticut, and Southern California. The company has used $380 million in a discretionary institutional fund capital to make these buys. This year alone, it bought 2,400 units.
PRG plays at a level generally below the institutional buyers. It targets properties for people making no more than 200 percent of area median income. While that generally means Class C assets, it will also score some Bs, such as two California purchases it made last year.
Edward J. Ratinoff, managing director and head of acquisitions for PRG, took some time to talk with Multifamily Executive senior editor Les Shaver about the company’s buying criteria and view of the market.
MFE: What sort of properties have you added in the past year?
RATINOFF: The theme for most of our properties, at least for the last year, was taking something that had maybe been fixed, but maybe not managed well. We could take advantage of adding more focused management and not having to do a lot [as far as rehab]. That being said, we also bought some heavy value-add opportunities where we were buying foreclosures and adding capital to get them up to a rentable condition.
MFE: What kind places are you looking at buying?
RATINOFF: The two funds are very focused on geography. Our New York fund has a specific focus of approximately 50 miles around New York City. In California, the geographic constraint is Los Angeles and the surrounding counties. Our geographic constraint is set by the fund, and that’s the way we raise the capital.
MFE: What’s the competition like in those specific markets?
RATINOFF: The competition is steep. You don’t have pure, core, Class A institutional investors. You have investors who are opportunity funds. I would say half of our competitors are really other funds, and half are individuals or private companies who are exchanging capital or raising capital on the private side.
MFE: How many more units would you like to buy this year?
RATINOFF: Now that were getting to September, it wouldn’t be crazy to believe that we will add three or four more properties. If the average deal size is 200 units, you’re at 800 to 1,000 units [with three or four properties]. Part of it is what the market offers. At the beginning of the year, the opportunities weren’t as abundant. Rates were changing, and sellers were on the sidelines. Activity picked up in the early summer and late spring. Things often tail off in August, so it’s hard to tell what will happen in the last quarter of the year.
MFE: What are you seeing in the debt market?
RATINOFF: We have typically used regional banks on the East Coast. On the West Coast, we use agency financing. Generally, we get between 65 percent and 75 percent financing. We’re trying to get as much leverage as the property will conservatively underwrite for as long as makes sense. Debt is very cheap. We believe that it’s advantageous to have long-term, cheap debt supporting the property. Your costs are fixed. We believe that rents are only going up in our markets. As long as operations and the economy prove to do what we think they’ll do, we’ll be in good shape.
MFE: Are you at all concerned about the financian news of the past couple of weeks?
RATINOFF: I’m not. For the most part, our portfolio has stayed fully occupied on stable properties. On the properties we’ve done renovations on, we’re at or above our pro forma numbers. Part of that speaks to the nature of what we buy. We’re buying property that houses people who make minimum wage or lower. Those are people who are doing service jobs. Those people are still working.