When Passco Cos. acquired Ocean Walk Apartments, a 297-unit community in Key West, Fla., over the summer, it marked the California-based firm’s largest single-asset transaction in its 18-year history.
The firm paid $101.5 million for the property, putting it on track to reach its $1 billion goal in commercial real estate assets this year.
Passco ended 2016 with more than $540 million in acquisitions and anticipated an even stronger stream of acquisitions in 2017, says Colin Gillis, vice president of acquisitions for the Southeast at Passco.
“We knew we were poised for significant growth coming into the year and immediately set the goal to not only surpass our 2016 acquisitions numbers, but to double them,” he says. “Our firm has been extremely active in the market and currently has several upcoming deals in the pipeline, further positioning us to achieve this goal by the end of the year.”
Passco owns more than 50 properties in 17 states and most recently acquired Watervue, a 264-unit Class A community in Lake Charles, La., in October. Lake Charles, Gillis says, will have a growth rate nine times higher than the entire state of Louisiana by 2018.
“The high concentration of jobs in the area will result in continued demand for multifamily housing throughout the area and will provide long-term stability for the asset for many years to come,” adds Gillis, who notes that at the time Watervue was purchased, the asset was 95% occupied.
Prior to the Lake Charles acquisition, MFE asked Gillis about Passco’s Florida activity, where it now owns nine properties and more than 2,000 units, as well as the company’s big Key West purchase.
MFE: Why has Passco been so active in Florida over the past two years?
Gillis: Florida boasts more progressive economic growth than any other state in the country. It's dominated by high-quality market fundamentals and demand drivers and continues to experience explosive job and population growth.
As a long-term owner, we continue to focus on regions that are poised for strong economic growth and that will continue to deliver value over time. Florida is one of those regions. We see tremendous value throughout the area and plan to continue to acquire properties throughout Florida and across the Southeast.
MFE: Why did Passco acquire Ocean Walk Apartments? What makes it appealing?
Gillis: Ocean Walk is an extremely rare find in one of the highest barrier-to-entry markets in the country. There are only three professionally owned multifamily communities on the entire island, including Ocean Walk. This means that this asset represents nearly half of the multifamily supply on the island.
In addition, Key West is regulated by a highly mandated growth ordinance, which makes new development in the region relatively impossible. This will ultimately prevent or greatly slow down the addition of new competition in an already supply-constrained region.
Ocean Walk also provides an opportunity for strong upside potential. We plan to renovate and update the 10% of the 297 units that weren't updated by prior ownership. This will allow us to further enhance the value of the asset and capitalize on the region’s continued rent growth.
MFE: What ultimately led to the decision to make the “largest single-asset transaction in the firm’s history?”
Gillis: Simply put, the value the property delivers to our firm and our investors in the long term. We're confident that, despite this being the largest single-asset transaction for our company, we'll see a tremendous ROI. Ocean Walk is an extremely rare asset that will continue to deliver value time and time again.
It's not often you come across a property that's located in a region with very limited multifamily supply, relatively no remaining development sites, and a heavily regulated growth ordinance.
This strategically positions the asset for incredibly strong demand and unmatched rent appreciation as demand will likely always outpace supply throughout the area. This will enhance the value of the asset over time, as well as allow us to generate stabilized cash flow and increased returns to investors.
MFE: Will Passco remain active the rest of the year?
Gillis: We currently have several acquisitions in the pipeline and plan to add several more over the next few months. We're actively working to identify, source, and acquire high-quality income-producing assets that fit our criteria and long-term investment strategy. We have no plans of slowing down anytime soon and plan to continue this momentum throughout 2017 and into next year.
