Value-Add Firm Buys 1,336 Class C Apartments

HOUSTON-A multifamily investment group, looking to buy 5,000 apartments in the coming year, has picked up 1,336 units in two back-to-back transactions in the Greater Houston area. The newest acquisition is a seven-property, 1,080-unit portfolio.

Centaurus Investments, based in Dallas, picked up the Windswept Portfolio from IMT of Sherman Oaks, CA and the 256-unit Waters at Kirkwood at 11710 Briar Forest Dr. from New York City-based Lehman Bros. Local sources say comparable class C apartments are selling, on average, for $25,000 per door.

The value-add player plans to spend upward of $2 million to upgrade the eight properties. The portfolio's assets are early to mid-1970s product, with occupancies hovering 95%. The Waters at Kirkwood, built in 1978, was 60% leased at sale time.

"Waters at Kirkwood is a distressed asset we purchased and we have a capital intensive play that should be completed in about 12 months," Cross Moceri, Centaurus managing director, tells GlobeSt.com. The exterior, including the parking lot, will be redone.

"The goal is to make that the best property of its vintage in that market," says John Griggs, Centaurus' other managing director. "It's in an affluent market and it'll be a class B property when we're done with it."

Griggs says the Windswept portfolio sold at 7.5% cap rate. "These properties are virtually full and operating fine," he adds. "The rents are below market. We hope to boost those over the next six months to a year to drive income higher than it's historically been on the properties."

Although both deals have different dynamics, they do have one thing in common--potential for improvement. "Our MO is to find deals we consider to have a tremendous upside," Griggs says. "Both of these share that and will only improve with extensive property remodeling."

Moceri says they'll most likely hold the Windswept portfolio for three to five years. "On the distressed asset, we'll be looking at a quicker turnaround, most likely within the 12- to 18-month range," he says.

The smallest property is the 93-unit Inglewood Village at 6363 Skyline Dr.; the largest is the 232-unit Shenandoah Woods at 4250 W. 34th St. The other properties are Southern Oaks, 198 units at 6353 Skyline Dr.; Hidden Pines, 185 units at 6360 Skyline Dr.; Peachtree, 154 units at 5720 Rampart St.; Ashley Square, 117 units at 6330 Windswept Lane; and Unity Pointe, 109 units at 6370 Windswept Lane.

The unit averages range from 722 sf to 946 sf while rental averages go from 66 cents per sf to 70 cents per sf. The complexes sit on tracts from three to 6.7 acres, with as few as six buildings to as many as 15. Part of the upside is tied to their locations--all within two miles of the Galleria.