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Loch Ness of Financing
January 28, 2013

Loch Ness of Financing

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Like Nessie or Big Foot, equity for multifamily development in the suburbs is something most people can't quite capture. Unless, of course, you're in Houston.

ARA VP Adam Allen recently closed four equity deals for multifamily construction here, and three were in the 'burbs. He says our fundamentals are coaxing cash from institutional and private investors. Strong sponsors help—these projects are with Alliance Residential and Trammell Crow Residential. The deals: the 203-unit Broadstone 3800, Midtown; 370-unit Broadstone Greenhouse, Katy; 380-unit Alexan Creekside Pines, The Woodlands; and 354-unit Alexan Enclave, Energy Corridor. Investors find the latter two submarkets particularly compelling, viewing them almost as infill sites. Adam has two more equity deals closing here (and one in Austin) this quarter.

Broadstone 3800
The biggest challenge in financing Broadstone 3800 (above), he says, was getting equity comfortable with the amount of new supply being built inside the Loop. But Midtown is the hot spot for young pros, and this project is being built in the path of growth (the southern edge). Lots of streetscape improvements are under way (including $8M on West Alabama), and the submarket's rent growth is strong. Plus, deals are trading above replacement, making development lucrative. Adam tells us this investor was new to development, a trend that will continue as traditional equity players are either gone or smaller than last cycle.

Ain't Goin' Down

jeff price in office
CRE's darling multifamily will continue to dominate in 2013, says JLL's new Texas multifamily managing director Jeff Price. Why? First, Jeff says, it's the most popular investment vehicle for many investors. Second: the reliable and attractive debt with Fannie Mae, Freddie Mac, and life companies. Third: the fair amount of new construction still hasn't met demand. Fourth: transaction volume—in virtually every city from '05 to '07—was huge. Assuming seven-year holds, '12 through '14 will be big transaction years. Finally, Texas markets are experiencing solid growth. Even with a lot of competition, there are still outstanding investment opportunities.

DFW multifamily team
The JLL DFW multifamily team: David Fersing, Janet McEowen, Bill Simmons, Jeff, Alisan Rutland, and Susan Gosslee. JLL acquired The Apartment Group, where Jeff was founder and prez, earlier this month. JLL's attributes influenced his decisions, and his realm grew from DFW and Austin to the entire state. Jeff will QB efforts to add more people to the team. Something you may not know about Jeff: He's a big fan of The Duke. His favorite John Wayne movies: The Searchers, In Harm's Way, and The Quiet Man. (If you look closely over Jeff's shoulder, you'll even see a John Wayne photo on his desk. That's right, pilgrim.)

Transwestern Closes Three

Transwestern's multifamily team (lead by SVP Ed Cummins and VP Clint Duncan) closed the sale of three multifamily properties totaling 1,039 units: Oaks of Westchase, Clarke Springs, and the Mills. Clint tells us Clarke Springs went to a California buyer in a 1031 exchange. It was a value-add, 149-unit manufactured housing project that offered significant cash-on-cash returns with additional upside. Manufactured housing can be challenging to finance, he says, which made it a trickier sell. But this buyer purchased it all-cash. (Just once we want someone to pay for a property in a pirate chest full of gold.) Transwestern repped seller Starwood Capital.

Clarke Springs
The duo predicts we'll see a number of stabilized Class-B and C properties selling this year. Many will be deals that sold distressed a few years ago and have been fixed up and put back on the market. (Don't call them distressed, call them "certified pre-owned," like Lexus.) Ed says debt and equity are available for these deals, as well as a strong appetite from investors looking for yield. The team has three assets totaling 1,162 units under contract and closing soon, including a 304-unit asset at I-45 and Beltway 8 North (going to a Dallas buyer that was very active here last year) and two properties in the 1960/I-45 corridor: a 464-unit asset that was recently foreclosed and is going to a syndicator from California, and a 378-unit community selling to a Midwestern private group.

Refinancings Abound

Campbell and Toland NY office
Older asset in a secondary market? Financing may be a challenge, but there's money available if your property and operations are in good shape, the submarket is doing well, and you have a solid sponsor, according to Berkadia SVP Stewart Campbell. He and NY-based colleague Tom Toland have arranged a $6.6M refi through Freddie Mac for the 184-unit, Class-B Riverwalk Apartments in Conroe. The 10-year, fixed-rate loan (at 70% LTV) will go toward capital improvements and equity for future acquisitions; it also lowered the borrower's interest rate from 6% to 3.87%. Bonus points for long-term owners: This borrower's owned the property for over 10 years and has a good history in the Conroe area.

Berkadia Cutt Ableson and Jon Gilfillan
We also caught up with Berkadia's local team, SVPs Cutt Ableson and Jon Gilfillan, who've arranged a $10M refi through Fannie Mae for the Augusta Meadows Apartments in Tomball. The process took almost 18 months, they say, as the Class-A, 264-unit property was built in '11 and was leasing up more slowly than anticipated. In other Berkadia news, the firm acquired Hendricks & Partners to form Hendricks-Berkadia, Apartment Real Estate Advisors, bringing investment sales and research into its fold.

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"They say such nice things about people at their funerals that it makes me sad to realize that I'm going to miss mine." -Garrison Keillor What would you like to see a Bisnow story about? Tell Catie Dixon, catie@bisnow.com.

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