When Los Angeles-based BH Properties decided to jump back into the multifamily market after the recession, finding a value-add opportunity at a class C or B- property seemed to be the best option.
So, in late 2010, the company began an acquisition spree by purchasing Fiesta Park in Mesa, Ariz. through a short sale.
“The property was underperforming and the owner was cannibalizing units,” says Steve Jaffe, the firm's executive vice president. “As units turned, he was pulling things out of them to fix the other units. So, the property had a lot of down units.”
Jaffe says he was in a meeting with a group of brokers when one asked if he was interested in looking at the 320-unit multifamily property.
“The next day we were on a plane,” Jaffe says. “We had a handshake agreement in two days and were under contract in seven.”
That deal proved to be something of a template. The company has since purchased about a dozen more multifamily properties, armed with lessons learned from the Fiesta Park rehab.
“Everything else we’ve purchased since then had similar characteristics, although, not as undermanaged and not as vacant,” he says.
The company pumped about $1 million into the renovation but didn’t go over the top because they wanted to keep rents within reason to increase occupancy.
“There’s a natural ceiling when it comes to what we could do in rents,” Jaffe says. “So, we had to spend money fairly carefully. When we looked at the individual units, we did basic things like resurfacing countertops.”
The team contemplated replacing cabinets, but opted to repaint them instead to keep rent lower and returns higher. The property was 54 percent occupied at the time of sale. After renovations were completed and down units were restored to function, occupancy grew to 90 percent and the company is beginning to raise rents a bit.
“But if we push rents too hard without offering people a better experience, they will leave,” he says. “So we are conscious of that.”
The curb appeal also posed a mountain of work for the renovation crew as they replaced siding on buildings, repaired stairs and fixed walkways.
A fresh coat of exterior paint and updated landscaping also gave the property a newer look but wasn’t eye-catching enough from the street to draw potential residents in, Jaffe says.
“We wanted an entry feature, so we built an archway over what we viewed to be the main entrance of the property,” he says.
The company also invested in creating a walkway from the entrance to a revamped leasing office.
“We did that over the whole process of remodeling,” he says. “It took about eight months from start to finish.”
