Value-Add, Condo-Mapped Building Flies

LOS ANGELES—A private investor transacting under the name Kester Villas LLC has purchased Kester Gardens, a 71-unit apartment complex in Sherman Oaks, for $23 million from the original developer. The buyer plans to invest additional capital to upgrade the 1980s vintage building, which has not been renovated since it was originally built. The property is condo-mapped and has significant upside following renovations, and as a result, the sale attracted significant interest with more than 24 bidders.

“There is a tight supply and very limited new construction in this market,” Dean Zander, senior managing director at Berkadia, tells GlobeSt.com. “Other than the fact that during the downturn the seller took the time to put a condo map on the property, adding in-unit washers and dryers, the interiors and the common areas were virtually untouched from the 80s. Buyers saw this as an opportunity to pick up a value-add property with tremendous upside and multiple exit strategies based on the condo map. We ended up with two dozen offers, and went to a best and final stage. The buyer put up nonrefundable money from the beginning and went non contingent to get the deal.” Zander represented the seller in the transaction along with his Berkadia colleague Vince Norris.

The property has a mix of two- and three-bedroom units, with an average unit size of 1,200 square feet and ample parking. When the developer added a condo map on the property, it installed in-unit washers and dryers. The buyer plans to carry out the renovations, adding countertops, flooring, appliances and upgrades to the property amenities, which currently include a pool, spa, fitness center and resident lounge. According to Zander, the buyer won't likely convert the property into condo units, as it is more of a long-term holder. However, several condo converters were at the bidding block. “During the downturn, the seller took a number of properties and put a condo map on them, just knowing that eventually the market is going to come back,” he explains. “I think it paid off because the some of the interest that we had was from condo converters, although the best offers we had were based on location, upside and long term ownership strategies.”

Rather than renovate the property, the seller decided to take advantage of the outstanding market conditions and cash in. “This was a strategic exit out of certain markets,” explains Zander. “The seller thought this was a good time to take advantage of the pent up demand, rising rents and low interest rates. They felt they could get a premium on the property without having to do additional capital improvements.”

Sherman Oaks does have a highly active multifamily market, and value-add properties almost always attract high attention when they do come up for sale. Earlier this year, another value-add opportunity came to market, garnering 30 offers. With limited new construction opportunities, demand in the area is likely to remain strong with low vacancy rates.