Apt. Buyers Look to Value-Add Opportunities

CHICAGO—Kiser Institutional Group, a Chicago-based broker specializing multifamily properties throughout the Midwest, has just listed for sale 1,100 apartments located in several portfolios throughout KY, WI and IL. And even though this is a significant number of units to hit the market, Kiser officials say they expect to garner a great deal of interest from investors across the US looking for the higher returns that value-add properties outside core areas can generate.

“It's the year of the portfolio,” Susan Tjarksen, principal and managing broker of KIG, tells GlobeSt.com, mainly because many sellers have noted the intensity of buyer demand and decided that “if I'm going to sell one property I might as well sell all five of them.” And buyers tend to appreciate this because it allows them to spread the risk among several geographic regions and types of tenants “instead of buying 500 units in one submarket.”

KIG new listings include a 202-unit apartment community in Lexington, KY; a three-property portfolio totaling 408 units in Gurnee, IL, Madison, WI, and Janesville, WI; and a two-property portfolio comprising 516 units in Waukegan, IL, a far north suburb of Chicago. KIG is marketing the properties without asking prices.

These properties will also give investors opportunities to establish themselves in high barrier-to-entry markets. Lexington, for example, is largely surrounded by horse farms, and land use regulations discourage suburban sprawl, which makes the 202-unit Patchen Place Apartments, located at 203 Patchen Dr., just off one of the city's main thoroughfares and near several big employers like the University of Kentucky, a significant find, Tjarksen says. “It's in the right location; it just needs to be repositioned.”

“The buildings have been well-maintained,” adds Todd Stofflet, managing partner of KIG, “and with a few basic improvements to the units, the new owner can raise rents, which are currently below market value, and boost the long-term value of the property.”

The three-property portfolio in IL and WI includes the 136-unit Carriage House Apartments, 4344 McClure Ave. in Gurnee, IL; 96 units at Park View Apartments, 1601 N. Randall Ave. in Janesville, WI; and the 176-unit Waterleaf Apartments, 6701 Schroeder Rd. in Madison, WI, just a few miles from the University of Wisconsin-Madison. Buyers can purchase these assets as a portfolio or individually.

The two-property portfolio in Waukegan includes the Briarwood Apartments at 336 N. Green Bay Rd., a 284-unit community of 18 California-style buildings on 17 acres. The other is the Heritage Green Apartments at 3060 Kathe Ln., a 232-unit community comprising 18 buildings on 14.8 acres.

“Both assets have been very well-maintained and have undergone significant capital improvements, which will allow new ownership to concentrate on operational efficiencies and resident retention,” says Stofflet. “By implementing strategic expense reductions, new ownership will see double-digit returns on this investment.”

It's the possibility of those lucrative returns that is helping to drive so many investors into the multifamily market. And Tjarksen says that demand has remained high even with Fannie Mae and Freddie Mac hitting the $30 billion cap in multifamily lending sooner than anticipated.

“It has not even caused a hiccup in the market,” she says. Many people blocked from such financing have found alternatives in CMBS and life insurance companies. “The buying and selling of apartment buildings is alive and well, and has even accelerated since the beginning of the year.”