Portfolio buy shows value added to apartments
Ten "Class B" apartment complexes, six in Oklahoma and four in Texas, just sold in a deal touching the homes and lives of at least 2,000 people who live in them, and nobody outside the transaction knows for exactly how much.
Them's the breaks, as they say, especially in Texas, where property sale prices are not a matter of public record. Nobody has to disclose the information. That's just the way it is.
MLG Capital in Brookfield, Wisconsin, bought the properties from The RADCO Cos. in Atlanta. CBRE, which represented RADCO, did give prices paid for the Oklahoma properties when asked — thank you, CBRE.
They showed significant increases in value over the past five years, from value added by property improvement, as well as general, ongoing investor demand for multifamily properties.
These are hot properties only in the investment sense. The apartment complexes, considered "workforce housing," were built in the 1970s and 1980s and comprise 2,769 units total. They're clustered in Oklahoma City, Tulsa and Houston.
Mike Buhl, of Commercial Realty Resources in Norman, who tracks the multifamily property market closely, provided the immediately previous sales prices and dates, and some commentary on the portfolio transaction. They were:
• The Warwick: 423 units, 3100 Northwest Expressway, $41,000,000, an increase of 31.6% from $31,164,000 in May 2014.
• Ashford Walnut Creek: 104 units, 6801 NW 122, sold for $6,500,000, an increase of 18% from the $5,506,000 it brought in December 2014.
• Ashford Northwest: 458 units, 2301 NW 122, $33,500,000, an increase of 38% from $24,274,000 in December 2014.
• Ashford Park: 152 units, 1301 W Hefner Road, $11,500,000, an increase of 31.9% from $8,720,000 in December 2014.
• Ashford Ridge: 142 units, 4334 E 66th St., Tulsa, $9,250,000, an increase of 52.5% from $6,064,000 in June 2014.
• Ashford Overlook: 284 units, 6336 S 33rd West Ave., Tulsa, $18,500,000, an increase of 45% from $12,750,000 in December 2013.
First, credit where it's due. Shea Campbell, Colleen Hendrix and Ashish Cholia, of CBRE Southeast Multifamily, represented the seller. They worked with CBRE's Brian Donahue in Oklahoma and Clint Duncan and Matt Phillips in Texas.
“With shrinking supply and growing demand, moderateincome apartments deliver some of the best fundamentals in real estate,” said Campbell, executive vice president with CBRE Southeast Multifamily. “This was a chance to secure a critical mass of workforce units, at a time of exploding demand.”
MLG's Ryan Mueller said the investment company was glad to put capital in Class-B multifamily property in growing metro areas in the Southwest. MLG and related entities own about 14,000 apartment units across the United States.
"MLG is not atypical of the market. The eagerness of investors continues to push the price of apartments to new highs," Buhl said. "New investors, like MLG, keep finding reasons to buy apartments and prices just keep rising. The fact is new investors are coming to this market at rates never before seen. Sellers like RADCO that recognize this trend are taking advantage of the opportunity to sell. And why not? Sellers are in a really strong position today."
But increases from 32% to 52% in five years? That's adding value, for sure.
Buhl explained: "The 1980s asset class is nearing 40 years old, and as properties age, they tend to evolve into mainstream workforce housing," he said. "So, much like those assets built in the 1960s and 1970s, many in this category are becoming less competitive because of physical obsolescence.
"The difference is that properties built in this era had better architectural characteristics than those earlier assets of the 1960s and 1970s making them especially attractive to those investors looking for the formulaic value-add play. Pricing follows demand, and there is more demand than supply for this product type today, which explains the increase in value."
He added, "Remember that RADCO purchased these assets as 'valueadd,' as well, so MLG may be undergoing a stage 2 or stage 3 valueadd if they hope to have the same success going forward as RADCO."
So maybe more value is to come, which means rising rents. That's what the 2,000 or so people living in the apartments should expect.