While the number of portfolio deals have been growing in 2011, they still haven’t reached past highs. But Norfolk, Va.-based Harbor Group International (HGI) has reeled in two multi-property buys this year. In May, HGI bought a 2,500-unit multifamily portfolio in southeastern Virginia from Great Atlantic Management. The company followed that up in July by purchasing a six-property multifamily portfolio, totaling 1,984 apartments, in Baltimore for $190 million. The seller was Sawyer Realty Holdings.
It plans to invest an additional approximately $7.75 million into various exterior and interior renovations to the portfolio. In fact, HGI now owns more than 3,300 units in suburban Maryland. The purchases give HGI, which is a private real estate investment and management firm, more than 20,000 apartment units to go with 9.8 million square feet of commercial space. Richard Litton Jr., president of HGI, took some time to take with Multifamily Executive senior editor Les Shaver about the company’s multifamily purchases.
MFE: How have you been able to secure these portfolios?
LITTON: Each portfolio had its own story. The Great Atlantic portfolio consisted of eight assets in Southeastern Virginia, which is where our headquarters is. It’s a market we are very comfortable with and the seller had a high degree of confidence that we understood the assets and we were able to perform. That deal also required the assumption of existing loans. That can be a time-consuming and difficult process. We have experience with lenders as a party that assumes other people’s loans. The Baltimore portfolio, which was a larger deal, had been in the market before. It’s another market where we have a lot of history and experience in the multifamily and office sector. The seller and the broker knew that we understood the market and knew we had the resources to do the deal.
MFE: Are you looking for more deals of this scope?
LITTON: Our portfolio for apartments goes from Washington, D.C., down through Florida through most of the major Texas markets and most major Midwest markets. We continue to look at portfolios. It may be geographic-specific portfolios like what we’ve done or it may be a company that selling multiple assets in multiple markets.
MFE: I noticed the Baltimore portfolio was a value-add opportunity. Is that where you’re seeing an opportunity in the market right now?
LITTON: Many of our apartment acquisitions involve some form of renovation or upgrade. It varies from property to property. With The Great Atlantic portfolio, we did have significant capital improvements that we thought were appropriate and necessary to grow rents on a property-by-property basis. In the case of the Baltimore portfolio, there were six properties that were clustered together closely. A lot of the focus was an improving amenities for residents and things of that nature.
MFE: Do you have a magic number that you’d like to add in the next couple of years?
LITTON: When we entered this year, we hoped to buy at least $750 million of assets. We’re at $450 million at this point. If the opportunities are there, we’d like to get at that $750 million number by the end by the end of the year. I think we have the opportunity to do that. I think it’s a matter of finding specific opportunities where we can be more competitive. If it’s a $25 million or $30 million apartment deal in suburban D.C. that everyone is looking at, we’re finding the pricing to be more than we can stomach in some cases. We do see opportunities and have things we’re looking at now that we anticipate closing in the next couple of months. Typically, after Labor Day, there’s a pretty good pipeline that comes on the market as we start thinking about year-end closings.
MFE: What’s your hold strategy?
LITTON: Our typical hold period is four to six years. We sell them when we’ve hit our investment objectives and, in the capital markets, it make sense to sell. We sold a number of assets this year. We hope to continue to do that. On a net basis, over the past 10 years, the company has continued to grow. I think that will continue to be the case.