Gaia Real Estate, Starwood Capital Group Sell 9,500-Unit Sunbelt Portfolio
The investment generated a 15x multiple return for investors after a 10-year hold.
Gaia Real Estate and Starwood Capital Group have sold a 9,500-unit apartment portfolio in the Sunbelt to PJ Portfolio investment. The duo purchased the portfolio in a Chapter 11 bankruptcy sale in 2012, and executed a value-add strategy on the dilapidated portfolio. Ultimately, the investment generated a 15x multiple return for investors after the 10-year hold.
The portfolio is located in growth markets throughout the Sunbelt region. Nearly half of the portfolio is in Dallas, while 19% is located in Phoenix; 8% in Atlanta; 8% in Houston; 7% in Ft. Lauderdale; 6% in Corpus Christi; 5% in Nashville and 3% in Orlando. At the time of purchase, the portfolio had 20% vacancy rate and 8% of the units were not in leasable condition. Gaia Real Estate and Starwood Capital Group infused tens of millions into the portfolio, stabilizing the portfolio and bringing vacancy to 5%.
The investors attribute the tremendous success of the investment to the early adoption of the Sunbelt investment strategy as well as a commitment to workforce housing investment. Workforce housing has been called America’s most wanted rental housing assets by Cathy Danigelis, western region manager at KeyBank, who estimates that workforce-housing renters make up about 60% of the total renter pool, more than both market-rate and affordable housing.
The Sunbelt region has also proven to be successful during the recent dislocation. On-time payment rates in independently owned rental units in the Sunbelt outperformed the rest of the country in February 2022 for the first time since October of last year, according to new data from Chandan Economics and RentRedi. About 80.1% of renters paid on time in Sun Belt markets in February, a decrease of 63 basis points over January and an increase of 458 basis points year over year. Conversely, 79.5% of renters paid on time in non-Sun Belt markets, a decrease of 144 basis points over January numbers and a 368 basis point increase year over year.
According to Danny Fishman, CEO of Gaia Real Estate, the portfolio was one of the last distressed investment opportunities from the 2008 Financial Crisis.