LOS ANGELES-GlobeSt.com has learned exclusively that Pegasus Investments is marketing a portfolio of 157 multifamily properties being sold as cooperative stock units for $14.9 million. The portfolio, referred to as the Sun Valley Collection, consists of eight individual buildings all located within a one-block radius in Sun Valley, part of the San Fernando Valley region here.
According to David Chasin, EVP at Pegasus, “An offering of this type, more commonly seen in Manhattan and San Francisco, is rarely seen in Los Angeles.”
Chasin tells GlobeSt.com , “You never see co-ops in L.A. The only examples of co-ops that are still in existence are on the Wilshire corridor.” He adds that co-ops are not likely to enjoy a resurgence in this market, making this opportunity all the more attractive, particularly at the asking price.
While the offering operationally functions as a simple multifamily investment, it differs in that each of the eight buildings is managed by separate homeowners’ associations, explains Trevor Carl Nelson, director at Pegasus. “Given the partial ownership structure of the offering, a crucial component is the majority ownership of the portfolio, which allows it to remain in control of the day-to-day operations of the property management.”
Much like purchasing a fractured condo, Chasin tells GlobeSt.com that ownership of the portfolio necessitates an extra step in getting elected to the boards responsible for managing each building. This step is likely to discourage institutional investors and make the portfolio more likely to appeal to private investors.
At a time when investors are getting creative in order to create value, properties like the Sun Valley Collection have gained momentum. “Many investors simply cannot compete with the institutions given their low cost of equity, so buying properties that have a complicated story or any attribute which someone would consider to be ‘out of the box’ helps private investors gain a competitive advantage in this market,” says Chasin.
The Sun Valley Collection is currently 100% occupied, and the asking price equates to a 7.2% year-one cap rate. “At current pricing, the Sun Valley Collection yields an approximate 200-basis-point premium to its like-kind, non-cooperative multifamily investment in the same area,” adds Nelson.
Pegasus represented the prior owner during the 2011 sale of the Sun Valley Collection. According to sources at the firm, the current owner has undertaken a substantial value-add approach by repairing deferred maintenance, procuring complex financing and bringing occupancy to 100%.
Chasin says the portfolio “is experiencing extremely high levels of investor interest due to its unusually high yield combined with future upside.”
As GlobeSt.com reported in 2011, Pegasus represented an unnamed buyer in the sale of Culver Center, a 216,578-square-foot neighborhood center Culver City, to Equity One for next to $115 million. Equity One represented itself in the transaction.