LOS ANGELES-Phoenix Realty Group has acquired three apartment complexes totaling 424 units for $31.5 million, marking the work force housing specialist's first significant investment in Southern California since 2006, Phoenix senior vice president Alex Saunders tells GlobeSt.com. Saunders says the company, which is on the lookout for other multifamily acquisitions, views this as a good time to buy in light of low rent levels and other market conditions that are conducive to investing.

The three properties that Phoenix bought are the 120-unit, six-building Cielo Vista garden-style complex at 1620 W. Rialto Ave. in Fontana that is 97% occupied, along with two properties in Riverside totaling 304 units that are 90% occupied: the Arlington Heights at 8655 Arlington Ave. and the Evergreen at 6195 Pegasus Dr.

Phoenix bought its own note on the Cielo Vista, paying $11.7 million, which amounted to a 35% discount on a distressed construction loan for the two-year-old property. It bought the Arlington and the Evergreen from a family trust for $19.8 million for a cap rate in the high 7% range. It is financing all three via Freddie Mac.

Saunders tells GlobeSt.com that Phoenix did not buy anything in Southern California in 2007 or 2009 and only one property in 2008. He says that the company selected the Inland Empire properties because it sees demand for Inland Empire apartments resurfacing in 2011.

"As unemployment levels off, there will be less need for people to double up with friends and family," he explained. "With virtually no new apartment construction in these areas, future demand will be absorbed by properties such as these."

Saunders pointed to the tightening mortgage market fueling stronger demand for more rental units in the Inland Empire. "Even with the crash in for-sale housing prices, the total monthly housing payment on a median-priced home in Riverside or San Bernardino counties still exceeds the current average rents of approximately $800 to $1,000 a month," he said.

The Phoenix announcement regarding the acquisitions quotes Edward J. Ratinoff, the company's managing director for national acquisitions, saying that, "Rents appear to be at the low point in the cycle, and we see this as an opportune time to leverage our available capital and agency financing experience to acquire assets with inherent potential." Ratinoff further says, "Urban housing is a lynchpin for real estate's recovery, and the hard-hit rental markets surrounding Los Angeles have started to stabilize as job losses bottom out."

Buying when rents are at or near bottom will translate into upside for Phoenix as the economy improves and rents rise, Saunders says. He says apartment prices probably hit bottom in the Inland Empire last year. Within the Inland Empire, Phoenix is focusing primarily on Riverside, Ontario, Corona and Rancho Cucamonga, but the company is also looking elsewhere in Southern California.

Phoenix provided the original equity on the construction loan for the Fontana complex, Saunders says, adding that the company negotiated with the lender for a year and a half before the lender became comfortable with the deal―an indication of how many distressed deals are going these days. Regarding the two Riverside properties, he says Phoenix bought for what it considers a very favorable cap rate that it would not likely be able to achieve if it were just starting the deal today.

"We went under contract in October 2009 on the two Riverside properties, which was not that long ago, but the market was very different at the time," Saunders says. He explains that the Riverside complexes attracted only 11 offers despite being widely marketed, and of those 11, Phoenix was probably the only institutional bidder. If the same properties were widely marketed today, he says, "I think it would be pretty challenging to buy at that cap rate."

The sellers of the Riverside assets were represented by Alex Mogharebi, an executive vice president in the Ontario office of Marcus & Millichap. PRG represented itself. The acquisitions were funded through PRG's Genesis Workforce Housing Fund II, which focuses on urban residential real estate investments in the Greater Los Angeles Metropolitan Area.

The new Phoenix assets will not need much in the way of additional investment because the Fontana property is new and the other two have been well-maintained, needing only a modest capital expenditure budget, probably about $1 million for the two of them, Saunders says.

The acquisitions are part of a program in which PRG, which is based in L.A. and New York, is pursuing multifamily properties in Southern California, New York, New Jersey and Connecticut, tapping nearly $300 million in institutional fund capital the firm manages for urban and infill investment. The firm owns and manages market-rate apartments across the US and Puerto Rico.