Multifamily isn’t the only housing sector beginning to deploy sidelined capital into Class A, high-barrier core acquisitions—or distressed commercial real esate, for that matter.
Following up an August acquisition of a $1.7 billion FDIC portfolio of some 300 distressed commercial real estate assets, Horsham, Pa.-based home builder Toll Brothers announced last week that is has purchased a property in the Upper East Side of Manhattan and will immediately begin construction on a 15-story mid-rise project that will include up to 25 luxury for-sale condominiums.
“The acquisition of this premier property is another example of our ability to move quickly to take advantage of opportunities that are emerging in the current challenging real estate market,” Toll Brothers CEO Douglas Yearly said in a news release announcing the deal. “With over $2 billion in available capital, we have been purchasing notes and properties across our various product lines.”
For single-family builders like Toll Brothers, those product lines have increasingly included multifamily, an asset class that several years ago was de minimis. (Today, about 10 percent to 15 percent of Toll Brothers' portfolio is in multifamily).
“We have been doing high-rises in New York City for five or six years now,” says Toll Brothers senior vice president of finance Fred Cooper. “We have two multifamily buildings in Hoboken, one building in Jersey City, we are on our second high-rise in Williamsburg, Brooklyn, and we completed a building in Union Square Manhattan. We have also done mid-rise podium stuff in California, Providence, Rhode Island, and Philadelphia, among other areas. It is all for-sale product.”
Players in the Field
The August FDIC portfolio acquisition announcement was a joint venture between Toll Brothers, Washington, D.C.-based Milestone Asset Opportunity, and Los Angeles-based Oaktree Capital Management. The group was the winning bidder for a $1.7 billion AmTrust Bank portfolio of largely delinquent commercial acquisition, development ,and construction loan assets as well as REO. According to the FDIC, 78 percent of those loans are delinquent, with 31 percent of the assets in the portfolio located in Florida; 16 percent in Nevada; 14 percent in Arizona; 13 percent in California, and the remaining 26 percent in other states. Neither Toll Brothers nor the FDIC was able to say what percentage of the portfolio’s assets is considered multifamily real estate.
Toll Brothers isn’t the only single-family homebuilder making FDIC waves—the firm’s Miami-based competitor Lennar Corp. made a $3.05 billion FDIC portfolio buy last February comprising of approximately 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships. Lennar followed up that deal this month with the acquisition of a $740 million portfolio of distressed real estate assets in separate transactions from three large, unnamed financial institutions.
According to a press release, the portfolio includes approximately 397 loans and 306 properties with non-performing residential and commercial loans as well as plenty of REO opportunity relating to land, lots, and single-family and multi-family residential communities at varying stages of completion. Lennar officials declined further comment on the firm’s multifamily strategy or the proportion of multifamily assets in any of the home builder’s 2010 distressed portfolio acquisitions.
Not all home builders are pushing the throttle on multifamily, particularly when it comes to regionally distressed markets. Although Bloomfield Hills, Mich.-based PulteGroup has been semi-active in multifamily mid-rise condo construction for several years, the builder asked officials in Cape Coral, Fla., for zoning changes to its share of the 524-acre, 1,579-unit Sandoval master-planned community. According to city planners, Pulte petitioned for a five-year extension on its build-out and zoning changes to allow for 48 single-family homes on 9 acres originally slated for 104 multifamily rental units.
"Approximately 75 percent to 80 percent of PulteGroup closings are single-family homes, with the remaining 20 percent to 25 percent being attached product," says company vice president of investor and corporate communications Jim Zeumer of Pulte's overall multifamily portfolio share. "The mix within individual markets may be different and can change slightly from year-to-year, but at this time we are not making a strategic shift in the overall product mix. Given the diversity of buyer segments and markets we serve, having the flexibility to effectively develop different product types is an important competitive advantage."