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PORTLAND-Local developer Marty Kehoe has paid a record $141,666 per unit for the 108-unit Uptown Heights Apartments overlooking Northwest Portland. Kehoe paid $15.3 million for the 16-building development and now plans to renovate the units and sell them off in three phases. If the individual units sell for an average of $240,000, their sale would bring in about $26 million. CB Richard Ellis broker N. Kirk Taylor had the disposition assignment for the seller, Mark Nicol of San Diego, who acquired the property in 1993 for $6.2 million after the original lender foreclosed on the property. The property was developed in 1990 by Seattle-based Leavitt, Shay & Co. Inc. Taylor tells GlobeSt.com that he talked to Kehoe about the asset in January as the offering memorandum was being prepared. The property never really made it to market. “He wanted to go ahead and submit a full-price proposal on the front end and, because of the capacity of Marty — he does things fast and has the financial strength to execute — the seller accepted his proposal rather than go to the market at large,” says Taylor. “In the condo world, there are a lot of guys trying to cobble deals together, but with Kehoe the seller had no credibility concerns.”Taylor says the next highest per unit price for an apartment sale occurred in September 2001, when Chicago-based Equity Residential paid $103,118 per unit for the 497-unit Avalon Palladia Apartments in Hillsboro. Unlike the Palladia, however, Uptown Heights was priced knowing it would likely be flipped as condominiums. Local apartment appraiser Mark D. Barry tells GlobeSt.com the per unit sale price is “the very top of the market” and the complex “wouldn’t make any sense as apartments at that price.”Kehoe, who was not immediately available for comment Tuesday morning, plans to rename the development Hilltop Condominiums at Uptown. The development includes one- and two-bedroom units ranging in size from 700 sf to 1,200 sf. Kehoe’s pre-sale renovations will include new flooring, countertops and appliances. Realty Trust Group Inc. is marketing the units for sale. The price range for the first wave of units to hit the market will be $185,000 to $300,000. The apartment complex is currently 100% occupied. By Oregon law, existing tenants have right of first refusal to purchase their own apartments.One prominent local investor tells GlobeSt.com that the rule of thumb for an apartment-to-condominium conversion is that an investor has to think about doubling his money on a gross basis in order to offset the marketing cost and the carrying cost. “You’re buying something as if it’s an income-producing property and then you begin stopping the income and start paying bunches of money to lawyers and real estate brokers,” he says. “And then at the end of the day, these things require pretty extensive insurance coverage by the seller to protect against future lawsuits, for which the premiums are pretty brutal.”If the units can be sold off for an aggregate price of $27 million within two years, the source tells GlobeSt.com that Kehoe stands to make an IRR in the low 20% range. If it takes longer than that and/or interest rates spike, as they might after the presidential election, then it will be harder for Kehoe to achieve the sales price for which he is hoping. And it could become harder still if condo developers in the nearby Pearl District begin dropping their asking rates for the same reason and start competing for the same buyers.

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