Barker Pacific Forms Value-Add Joint Venture

LOS ANGELES—Barker Pacific Group and Pacific Real Estate have formed a joint venture to invest in value-add multifamily in Arizona, Nevada and Texas. The joint venture will operate under the name Sterling Real Estate Holdings, and will purchase value-add properties ranging in price from $5 million to $35 million.

"The opportunities that we see are difficult to find in many of the realms of real estate in which we operate," Michael Barker, president of Barker Pacific Group, tells GlobeSt.com. "In the class-B multifamily apartment space, we are finding that there are projects that are in need of a renovation because they haven't been maintained properly or they haven't been managed properly, and we are just trying to find those situations where we can go in and make those improvements and hopefully improve the environment for the people who live there."

At this point in the cycle, value-add opportunities are more difficult to find, but Barker  says that the firm will focus on lightly marked and off-market transactions to avoid competition and high prices. "We have a network of brokers that we rely on in each of the markets where we focus," he says." Finding opportunities that are not bid up is not easy, but we have a good team in place and we have a lot of experience in doing renovations and rehabs of this type of project. We feel like we have the right team in place to take on a property that needs love and care."

The two firms will purchase the assets with their own capital as well as capital from its stable of investors, and will invest an additional 15% to 20% of the purchase price into the property. Barker says that they will underwrite each investment for three years, noting that if there is a potential downturn in that time, value-add properties are more recession proof than core assets. "We think the cycle is a bit long in the tooth, but we think the affordable range of multifamily is less susceptible to a severe downturn than if we were buying brand new, high quality, high price projects," he says. "It is a little bit more recession proof than other types of projects." The joint venture has already purchased its first property in Phoenix, AZ.

Barker Pacific also invests in office properties. Earlier this year, it formed a joint venture with LNG Management to recapitalize its office property in Old Town Pasadena and convert it into a creative office space.