Harbor Group International made a big splash last fall with a $1.8 billion portfolio transaction, the largest in the company’s history. The Norfolk, Va.–based firm acquired the 25-property, 9,677-unit multifamily portfolio from affiliates of Lone Star Funds on Nov. 30, 2017.
The properties are located in the Washington, D.C., metro area; Philadelphia; Baltimore; Chicago; and Boston. HGI plans to invest approximately $80 million to upgrade the unit interiors, enhance the property amenities, and improve curb appeal. Average occupancy for the portfolio is approximately 95%, and HGI says it believes its value-add initiatives and focused management will boost revenue.
“HGI was selected to acquire this portfolio due to the company’s strong track record with complicated portfolio transactions,” said Jordan Slone, chairman and CEO of HGI, in a statement. “HGI was able to quickly mobilize a large-scale due diligence effort and secure attractive financing with Freddie Mac and New York Community Bank. This acquisition propels HGI further up the rankings as one of the largest apartment owners in the country.”
The company owns approximately 30,000 apartment units and was No. 34 on last year's NMHC Top 50 Owners list.
The acquisition was the second-biggest deal of 2017 and increased HGI’s investment portfolio from approximately $5.2 billion to $7.1 billion.
According to HGI president Richard Litton, Eastdil Secured, on behalf of Lone Star, first marketed the portfolio in mid-2017. HGI was awarded the transaction in late August.
Here’s more from Litton on the deal and HGI’s future plans:
MFE: What made this portfolio attractive to HGI?
Litton: The properties are located in strong, supply-constrained markets. We believe the properties will experience rent growth given our management expertise and efficiencies and the capital programs we will implement at the properties.
MFE: Why was this the right time for HGI to make the largest transaction in its history?
Litton: HGI has equity resources to complete very large transactions as long as a deal meets our investment parameters. A goal in 2017 was to acquire a large apartment portfolio within our investment parameters.
MFE: The markets in which the 25 properties are located are all major metropolitan areas. Is that part of an HGI strategy?
Litton: We only focus on markets with MSAs of 1 million or more for our apartment acquisitions.
MFE: What does HGI like about these markets?
Litton: They're strong job-growth markets, infill locations with good school systems. We believe the properties will continue to maintain very high occupancies with opportunities for ongoing rent growth; [they] cater to demand for [Class] B product within the submarkets.
MFE: What impact will the $80 million in upgrades have on these properties and, ultimately, HGI’s bottom line?
Litton: We believe our capital program will allow for continued rent growth during our hold period.
MFE: How does this acquisition set HGI up for 2018?
Litton: We expect to continue to deploy significant capital in the apartment sector in 2018 as long as opportunities fit within our investment parameters and risk/reward metrics.
MFE: Will HGI remain active in the transaction market?
Yes.
