This Is How Private Investors Win Value-Add Deals

LOS ANGELES—An eight-property, 484-unit value-add multifamily portfolio traded hands between two private investors for $40.5 million. The exchange began as a single asset sale; however, the seller, an investor operating under the name Chanslor Street LLC, decided to sell his larger portfolio of deferred-maintenance properties and the buyer, an unnamed private investor, leaped at the opportunity to bolster its value-add portfolio. The seller exchanged out of multifamily into triple-net lease assets.

“The seller contacted me to list a 16-unit property in San Bernardino, and we determined that there was a tremendous amount of deferred maintenance,” DeLonne Valens, an SVP at NAI Capital, tells GlobeSt.com. “It became clear to me that there were only a limited number of buyers that would have the deep pockets for this kind of deal. The buyer is a very prominent investor and is one of these people that could take on this type of project.” Valens represented the seller and the buyer in the transaction, along with NAI VP Tim Steuernol.

All of the properties have major upside with below market rents and the ability to add significant value; however, they also have deferred maintenance. “All of the buyer's properties are long-term hold. The rents were well below market on each of the sites, so I think that over the long term, they will improve the units and raise rents,” Steurnol tells GlobeSt.com. The buyer plans to hold all eight properties long term.

Because multifamily is management intensive, Valens recommended that the seller exchange into triple net assets, which tend to require less management and maintenance. “The portfolio became a challenge from a management perspective for them, and they decided to unload the properties and move the capital into triple-net assets where there is no management and they can collect checks every month,” explains Steurnol.

This single-property transaction turned into an eight-property transaction because the buyer was prepared and able to close on the remaining portfolio. Had this portfolio gone to market, there would likely have been tremendous interest, especially in this market where everyone is looking for value-add properties. “This is exactly what everyone is looking for in the multifamily market right now,” says Steurnol, while Valens adds, “Even though these are c-class buildings with deferred maintenance, these are the buildings that are in demand. People want to add value, and we saw very compressed cap rates on these sales.”

LOS ANGELES—An eight-property, 484-unit value-add multifamily portfolio traded hands between two private investors for $40.5 million. The exchange began as a single asset sale; however, the seller, an investor operating under the name Chanslor Street LLC, decided to sell his larger portfolio of deferred-maintenance properties and the buyer, an unnamed private investor, leaped at the opportunity to bolster its value-add portfolio. The seller exchanged out of multifamily into triple-net lease assets.

“The seller contacted me to list a 16-unit property in San Bernardino, and we determined that there was a tremendous amount of deferred maintenance,” DeLonne Valens, an SVP at NAI Capital, tells GlobeSt.com. “It became clear to me that there were only a limited number of buyers that would have the deep pockets for this kind of deal. The buyer is a very prominent investor and is one of these people that could take on this type of project.” Valens represented the seller and the buyer in the transaction, along with NAI VP Tim Steuernol.

All of the properties have major upside with below market rents and the ability to add significant value; however, they also have deferred maintenance. “All of the buyer's properties are long-term hold. The rents were well below market on each of the sites, so I think that over the long term, they will improve the units and raise rents,” Steurnol tells GlobeSt.com. The buyer plans to hold all eight properties long term.

Because multifamily is management intensive, Valens recommended that the seller exchange into triple net assets, which tend to require less management and maintenance. “The portfolio became a challenge from a management perspective for them, and they decided to unload the properties and move the capital into triple-net assets where there is no management and they can collect checks every month,” explains Steurnol.

This single-property transaction turned into an eight-property transaction because the buyer was prepared and able to close on the remaining portfolio. Had this portfolio gone to market, there would likely have been tremendous interest, especially in this market where everyone is looking for value-add properties. “This is exactly what everyone is looking for in the multifamily market right now,” says Steurnol, while Valens adds, “Even though these are c-class buildings with deferred maintenance, these are the buildings that are in demand. People want to add value, and we saw very compressed cap rates on these sales.”