Portfolio Asset

LOS ANGELES-The buyer of a 124-unit affordable apartments portfolio held on through an escrow of more than two years to line up new financing after the capital markets freeze halted the financing that was originally planned for the deal. Brent Sprenkle of Hendricks & Partners, who represented the buyer along with Tim Steuernol of NAI Capital, tells GlobeSt.com that just after the portfolio was placed into escrow on July 24, 2008, the financing market collapsed. The buyer, Torrance, CA-based Preservation Partners, has now closed escrow on the portfolio of five apartment buildings in Los Angeles that Preservation acquired from Postive Investments of Arcadia for $9.72 million.

Preservation plans to completely rehab the properties and spend upwards of $40,000 per unit on capital improvements, according to Sprenkle and Steuernol. They note that the buyer "persevered and eventually obtained HUD financing with new bonds issued through the California Housing Finance Agency and purchase by the US Treasury." Added Sprenkle and Steuernol, "This form of debt took a very long time to procure as the properties were all affordable housing projects with Housing Assistance Plan contracts that were project-based. Also, there were tax credits issued that were purchased through Union Bank who is their investor."

L.A. Property

The portfolio comprises buildings at 251 S. Berendo, 922 S. Lake, 2802 W. Eighth St. 249 N. Juanita and 1011-1025 N. Cummings. The properties, built in the 1920s, are mostly studio apartments with a few one-bedrooms, and are of wood frame and stucco construction, with no parking, and master metered. The seller was represented by Ramu Sunkara of Remax.

At the time of opening of escrow, the transaction was priced at a 10.76 GRM and a 4.57% cap rate. The rents have been increased slightly, so Sprenkle and Steuernol estimate that it’s probably around a 5% cap on today’s income and expenses. "The properties were extremely valuable because of their low income housing status and contracts with HUD," they say.