For those interested in watching the construction of a multifamily asset portfolio in progress, look no further than Dallas-based Behringer Harvard, which announced its acquisition this week of San Sebastian, an age-restricted multifamily community in Laguna Woods, Calif., approximately 35 miles southeast of Los Angeles. The 134-unit Orange County deal marks Behringer Harvard’s 20th acquisition under the company’s Multifamily REIT 1, a publicly-listed, non-traded real estate investment trust with an offering size of $2 billion that has dominated the multifamily deal space for the past year.
In addition to San Sebastian, Behringer Harvard closed out 2009 with acquisitions of the 177-unit Calypso Lofts in Irvine, Calif., and Gerding Edlen’s 16-story, 352-unit residential tower in downtown Portland, Ore.
All three transactions are characteristic of Behringer Harvard’s acquisition strategy thus far, summed up best by the REIT’s chief operating officer Mark Alfieri concerning the Calypso Apartments and Lofts: “Calypso fits well with our strategy of acquiring newly constructed multifamily assets in high-growth markets at attractive pricing from an historical perspective.”
Indeed, all three deals are currently in lease-up or about to enter lease-up as Behringer Harvard assumes ownership. Despite broad concessionary challenges to achieve the lease-ups, the firm nevertheless remains confident that asset quality, location, and amenities can carry the day. “The phenomenal locations, excellent demographic profile of the areas, incredible amenities, and very high build quality make these attractive to our portfolio,” says Behringer Harvard chief administrative officer Jason Mattox. “These locations fit very well within our geographic diversity and the asset quality complements our existing portfolio, and we are confident we are identifying assets that have many of the right factors to facilitate lease-up despite broader economic challenges around the country."
With the firm's most recent acquisitions, the Behringer Harvard Multifamily REIT now has investments in 5,600 units of multifamily assets across 11 states. In interviews with Multifamily Executive, Alfieri has indicated the firm is just getting started. “I think our run rate on the acquisition side is going to increase dramatically in 2010,” he says. “I think we’ll buy twice as much.”
Regarding the acquisitions of both Calypso and San Sebastian, Alfieri suggests Behringer Harvard is looking to build a “substantial presence” in Southern California, a pledge that has not gone unnoticed by competitors also bidding on Class A assets in across the Golden State. “Behringer has been the 800-pound gorilla in the acquisitions market. They have really been something,” says Jeff Allen, CEO of Irvine, Calif.-based Raintree Partners, which is in the midst of deploying a $200 million value-add acquisition fund, notably with the $21 million purchase of the 168-unit Mountain View Apartments in San Dimas, Calif., in December 2009.
All three of Behringer Harvard’s latest deals were made as a joint venture between the company’s Multifamily REIT 1 entity and PGGM, a Dutch pension fund and Behringer Harvard’s primary co-investor. Alliance Residential was also named as a partner in the San Sebastian deal, which was made possible through a “strategic alliance” with the Phoenix-based multifamily owner/operator. According to CAO Mattox, Alliance has been a valuable partner in assisting to identify acquisition opportunities and will also assume property management for certain acquired communities.
“We worked with Alliance Residential on the acquisition of this property, and they will manage the asset going forward,” Mattox says. “We also worked with Alliance on Forty55 Lofts [acquired Oct. 5] in Marina del Ray. We have a great relationship, and I believe our past transactions form a great basis for finding future opportunities together.”
That partnership could prove valuable as other players finally begin to return to the multifamily acquisitions market. Greensboro, N.C.-based Bell Partners, for instance, announced in December that the firm had purchased Deerwood, a 282-unit Class A luxury apartment community in Jacksonville, Fla. Meanwhile, Atlanta-based Pollack Partners announced earlier this week that it had acquired the 510-unit Bay Isle Key condominium community in St. Petersburg, Fla., from GE Capital for $32.5 million. Pollack Partners will continue to market the units for sale and will rent unsold units in the interim. Legacy residents will retain ownership of 72 condo units in the community.
