Credit: Waterton Residential
BRIGHT LIGHTS, BIG CITY: Chicago-based Waterton Residential will target upwardly mobile Gen-Y renters at the Mondial, a fractured condo deal where the firm was able to pick up 124 of 141 units via its Property Venture XI fund.
Who says the high-barrier-to-entry acquisition market is all dried up?
If recent deals by Dallas-based Behringer Harvard; Irvine, Calif.-based Bascom Group; and Chicago’s Waterton Residential and Equity Residential are any indication, Class A assets in top-tier metros are still to be had for well-capitalized buyers willing to work the rolodex and take advantage of relationships with lenders and developers.
In San Francisco, Behringer Harvard was successful this month in acquiring Argenta, a 179-unit luxury high-rise completed in 2009 that failed to pencil out as condos for the developer. For $94 million, Behringer Harvard gets a downtown tower with units that boast 9- and 10-foot ceilings; hardwood and tile floors; and in-unit washer and dryers to cater to Bay-area Gen Y renters. “Beyond the general appeal of the San Francisco market, Argenta stands to benefit from an influx of technology employment, including Twitter’s recent decision to relocate its headquarters to Market Square, which is literally across the street,” says Behringer Harvard chief administrative officer Jason Mattox. “Young professionals that work for technology companies like Twitter are precisely the type of prospective residents we target for high-quality multifamily communities like Argenta.”
Waterton Residential will also look to target young professionals at Mondial River West, a 15-story downtown Chicago fractured condo deal and the firm’s first acquisition made since closing its Property Venture XI fund. “We really like the urban play,” says Waterton senior vice president of acquisitions Mark Stern. “We are looking as additional assets in Chicago and Manhattan, and we are close to closing a deal in uptown Dallas. We think people want to live in urban areas; they want to live close to work, close to employment, and close to transportation; and these markets have all got that, in addition to very high replacement costs."
Stern says executing on deals like the Mondial takes patience, good relationships, solid capital backing, and a reputation for execution and certainty of close.
Built in 2009 by Citta Development Group, the 141-unit Mondial was first marketed to apartment investors 18 months ago when it was 100 percent vacant, but Wells Fargo balked at offers made on the asset and decided instead to refinance the developer’s loan into a $30 million A and $8 million B traunch and make a go at selling units. In April, Citta called Waterton to say that hitting the numbers necessary to fulfill the loan obligation looked unlikely and Waterton was able to bulk purchase 124 of the building’s 141 units for just under $30 million.
“The developer called us up because he remembered us from the first round,” Stern says. “We had established a good relationship, the developer knew we had the money available in our Venture XI fund, and we have a well-known name in the market for closing quickly on deals, so it was true off-market. Plus it’s condo quality: It’ll be one of the nicest rental products in downtown Chicago.”
In Dallas, the Bascom Group scored on a 183-unit high-rise purchased out of receivership. Built in 1926, the David Building was converted into luxury apartments in 2003 and also features 52,235 square feet of retail and a 12-level, 600-space metropolitan parking garage. Listed on the market by Marcus & Millichap after Hamilton Properties completed a $35 million facelift but was unable to pay off or restructure a $32.6 million CMBS loan, Bascom was successful in out-dueling bidders and assuming and restructuring the debt load with J.E. Robert Cos.
“I imagine there was a great deal of competition,” says Bascom senior vice president of acquisitions Jeff Fuller. “We welcome more downtown opportunities, but they are still very hard to come by at the right price and terms. The competition for infill core assets if brutal but every now and then we can find a gem that makes sense.”
Indeed, cash seems to be king when its closing time for downtown multifamily deals, whether on or off market. Equity Residential plopped down $100 million in cash this month for the 322-unit Pegasus apartment tower in downtown L.A., proving that the coastal markets are still very much in play, at least for big-time buyers. “We’re seeing that properties are still available in major markets that traditionally would be classified as core assets but may be experiencing property-level challenges related to financing or fundamentals in a submarket that is still recovering,” Mattox says. “Behringer Harvard often can close quickly, buying with cash if that’s most expedient, and then seeking financing later.”
Still, others are content to work the phones and stay out of the bidding fray as they search for gems. “If a brand new high-rise is listed by a broker in downtown Chicago, I’ll never win the bid,” Stern says. “We don’t typically buy core assets: We buy opportunistic situations where we end up getting core assets sometimes. So we’re working with banks and we’re working with the developers, because if you can get in with them and get in early, it helps a lot.”