ROCHESTER, NY-Conifer Realty LLC, a newly formed company headed by executives with Home Properties, has entered into a binding contract to purchase the affordable housing development operations from the Rochester-based REIT in a leveraged buyout. Home Properties executives report the contract calls for the sale of the affordable housing development division for the book value cost of $6.7 million.
The transaction, scheduled to close on Dec. 31, will consist of $5.4 million in cash and $1.3 million in guaranteed deferred payments. In addition, Conifer Realty, which will be headed by Richard J. Crossed, executive vice president and director of Home Properties, has committed to purchase land for future development within the next two years for $9.4 million plus real estate taxes and interest carrying costs.
The land purchase is also based on the estimated book value, Home Properties officials state. The deal to sell the affordable housing division was first reported on Oct. 26 when Home Properties announced it had reached an agreement in principle with Conifer Realty.
Crossed has been responsible for the affordable housing development operation since his former company Conifer Realty Inc. merged with Home Properties in 1996. He now says he intends to resign his positions at Home Properties.
Crossed commented on the rebirth of Confier Realty that, “Our relationship with Home Properties has been a successful and beneficial one. We have enjoyed the gratifying work we have done together. As a separate, private company, we believe we will have additional flexibility to implement many exciting and important real estate development initiatives. We have a staff of highly skilled professionals with a strong entrepreneurial spirit. Their years of development experience will further our role as an established industry leader.”
The deal involves more than 30 developments in various stages of completion, according to Home Properties’ chairman and co-chief executive officer Norman Leenhouts. He notes that changes in tax laws, along with the company’s intent to focus on market-rate housing, convinced the company to sell the affordable housing division. “It really complicated our mission,” he says.
The company explored a sale of the division since March of this year when it retained Mercury Partners as financial advisor. At that time it received significant interest from prospective investors and purchasers.
“In the end, we concluded that the group most capable of understanding and properly valuing our pipeline was the management team that had been responsible for creating it,” Leenhouts relates. “This is the best of both worlds for us. We will no longer be involved in the complex and volatile development process. We will retain the steady source of revenues from managing the completed affordable apartment communities, which we control as the general partner.”
As part of the transaction, approximately 35 current Home Properties employees will become employees of the new Conifer Realty LLC. Conifer’s business plan will focus on the development and management of affordable housing, utilizing a variety of state, local, and Federal programs. Conifer Realty, company officials report, will also assume management for approximately 625,000 sf of commercial and mixed-use space, where Conifer Realty Inc. has remained the general partner since its merger with Home Properties.
Conifer will relocate its operations to some Downtown location here, according to Leenhouts, in approximately 4,000 to 5,000 sf of space. The new venture will concentrate on a geographic area that includes New York, New Jersey, Pennsylvania and Maryland. In addition, Conifer will maintain offices in Syracuse, NY and New Brunswick, NJ where it will take over space currently occupied by Home Properties.
Not part of the Conifer sales transaction will be property management operations for 8,225 apartment units in 135 existing affordable communities, as well as for a handful of soon-to-be-completed projects, which will be retained by Home Properties. Currently, Home Properties operates 318 communities containing 50,625 apartment units. The company also manages 1.7 million sf of commercial space.