Affiliates tied to Harbor Group International just paid $1.85B to acquire 36 U.S. apartment communities from Los Angeles-based Aragon Holdings.

With more than 13,000 rental units in the portfolio, this is the fifth-largest multifamily transaction in U.S. history and the largest purchase under the HGI umbrella since its $1.8B acquisition of apartment assets from Lone Star Funds affiliates, according to HGI.

Most of the assets are in the South, but 3,300 units are in Dallas-Fort Worth and 2,500 in Denver. Aragon announced the sale as part of its larger $2B offloading of 15,000 apartment units concentrated in 12 cities across eight U.S. states.

The purchase fits into Harbor Group International's value-add strategy.

HGI set aside $90M in renovation capital, or nearly $7K per apartment unit, to bring the acquired assets up to competitive rental rates, Harbor Group International President Richard Litton Jr. told Bisnow.

"We think on a broad portfolio basis the rents here are about 22% under market [compared] to rents on properties that have done value-add interior programs," Litton said.

"The seller, Aragon, they bought in very good submarkets and did a great job keeping these assets well-maintained, clean and fully occupied. But they did not implement any value-add or capital programs on the interiors."

Litton said his team will utilize detailed market studies to improve every apartment's interior to bring each asset to a level that is competitive against other products in the same submarket.

The remaining units sold are in Houston, San Antonio, Orlando, Phoenix, Salt Lake City, Albuquerque, St. Louis and Kansas City.

Newmark Knight Frank represented Aragon in the sale and HGI on its debt financing.

Aragon also relied on NorthMarq Capital in handling debt assumptions, while the HGI affiliates employed Meridian Capital Group as an adviser.