New York-based Home Properties of America has purchased Gardencrest Apartments, a 33-acre, 64-building multifamily complex in Waltham, for $85.5 million.
Providing an encouraging boost as the commercial real estate market reaches the mid-year point, two prominent multifamily complexes in suburban Boston have been placed under agreement, with the Gardencrest Apartments in Waltham finally being acquired by a New York group and SSR Realty reportedly preparing to close on Mill Village in Randolph.
In a deal that appeared dead in the water just a few weeks ago, Home Properties of America has purchased Gardencrest, with the real estate investment trust paying $85.5 million for the 696-unit development. The agreement is being monitored closely by Waltham affordable housing advocates, who fear displacement of tenants if the new owners implement hefty rental rate increases. City officials have already warned they will be diligent in trying to keep elderly residents from being displaced by higher rates, but Home Properties has already indicated the complex will undergo extensive – and costly – renovations that would indicate some need to hike rents.
“It’s going to be a test now to see if they can extract the value for that location,” said one industry official familiar with the property. “They’ve got their work cut out for them.”
Gardencrest’s local owners, the DeVincent family, had supposedly been seeking between $90 million and $100 million for the sprawling development. Some observers maintain the lower price reflects a willingness on both sides to compromise and dilute the need for damaging rental increases. Meredith & Grew broker David Pergola Sr. would not discuss what factors went into the final figures, but insisted that “we’re very happy with the price.”
“It was an excellent purchase for [Home Properties] and an excellent price for the seller,” said Pergola. He also predicted that the REIT would do its best to accommodate the concerns surrounding the sale, basing his view on the company’s track record at other properties.
“They are terrific,” said Pergola. “They will take a very balanced approach in dealing with the current tenants.”
Whether it had an influence or not, it does appear that Home Properties raised the specter during negotiations that it might have to keep rents lower to assuage Waltham city officials and tenant groups. Community awareness on such matters was raised in the late 1990s when SSR Realty purchased the Northgate Apartments in Waltham only to undergo widespread criticism when the new ownership quickly raised rents in that complex.
Calls to Home Properties officials were not returned by Banker & Tradesman’s press deadline, but some familiar with the REIT also said they believe its leadership will be more sensitive to the current residents. Among those praising Home Properties founders Norman and Nelson Leenhouts was Gary J. Lemire, a principal with CB Richard Ellis/Whittier Partners who specializes in multifamily sales.
“These guys will be very good owners for the property,” said Lemire. “I think they are a lot more sensitive to the [tenant] population than a lot of landlords would be … It should be a good fit for everybody.”
‘Capital’ Idea
In the other major sale, CB/Whittier is brokering the 310-unit Mill Village in Randolph on behalf of Equity Residential Trust, which purchased the development in 1998 for $19.2 million. SSR Realty will reportedly pay just over $33 million for the complex, with some sources maintaining the deal could be cemented as early as this week.
Lemire declined to discuss the Mill Village deal, citing confidentiality agreements. Overall, he said, the recent activity is indicative that multifamily properties remain a prime target for investors, even though the recession has resulted in higher residential vacancy rates and a need to offer incentives to lure tenants into a lease.
“All in all, this is a very good time to be transacting multifamily properties,” he said. “There’s a lot of capital chasing it right now, especially because [buying] office buildings seems a little bit risky.”
At Gardencrest, Home Properties paid an estimated $122,000 per unit, and company officials said in a press release last week that they will invest another $10 million in the next few years on such items as replacing windows, adding a community center, upgrading the heating and air conditioning systems and increasing the number of parking spaces.
According to the press release, Gardencrest is currently 95 percent occupied, with the average monthly rent running at $1,004. Built between 1948 and 1973, there are 64 apartment buildings on the 33-acre complex, with 138 one-bedroom units, 500 two-bedroom units and 47 three-bedroom units. The average unit size is 877 square feet.
Home Properties officials said they anticipate a 7 percent initial first year unleveraged return on acquisition and capital improvement costs. That return, they said, is calculated after allocating 3 percent of rental revenues for management and overhead expenses and before normalized capital expenditures of approximately $400 per unit annually.
Home Properties said rental increases for existing residents will be “gradual,” but said cash flow is expected to increase substantially over time from higher rents, producing a favorable return of investment. The firm added that there is “considerable opportunity for rental rate increases because the market rate for apartments is approximately 45 percent higher than the levels being achieved at the complex.
Home Properties President Nelson Leenhouts said Boston is the last of six submarkets his firm has targeted for future growth, adding that the inaugural acquisition is “a quality property in a location we consider nearly perfect.”
“The multifamily market in Boston has stabilized and improved considerably since earlier in the year, with concessions having all but disappeared,” he said. “This increases our optimism that we can enhance Gardencrest in a way that will benefit both the community’s residents and Home Properties’ shareholders.”
Despite that rosy outlook, Home Properties reportedly had walked away from the sale after the DeVincent family rejected efforts to retrade the price downward. Indeed, the ownership had reportedly approached other investors to see if they would revisit the deal. Observers familiar with the negotiations said they believe it was a combination of the recent market downturn forcing the DeVincents to accept a lower price, as well as Pergola and colleague Anthony Biette keeping the parties together to see the sale to completion.
“They pulled it off,” one source said of the Meredith & Grew brokerage team that handled the transaction. “It wasn’t easy, but they did it.”
