968-Unit Portfolio Strikes Rare Sales Chord

(Read more on the multifamily market.)

DALLAS-Houston-based McCord Development Inc., looking to exit North Texas, has brought one of the few class B multifamily portfolios to market this year. The $41-million four-asset listing with 968 units, though, isn’t primed for cherry-pickers.

“The seller wants a portfolio purchase. They don’t want to be left with one property in Dallas,” Will Balthrope, senior director of the Balthrope Group of Marcus & Millichap Real Estate Investment Services, tells GlobeSt.com about the packaged deal. The package, which isn’t cross-collateralized, is 91% occupied.

Three properties are located in Bedford: the 360-unit Point Loma Woods at 1300 Shady Lane, 192-unit Courts of Bedford at 1501 Tennis Dr. and 176-unit Cantebria Crossing at 1950 Oak Creek Lane. The loner is the 240-unit Village Square Apartments at 5959 Watership Lane in Southwest Dallas.

McCord’s approach to selling in Dallas/Fort Worth sharply contrasts with Chicago-based Equity Residential Properties Trust, which has 2,582 units in eight complexes up for sale in Dallas/Fort Worth with six brokerage houses rather than showing it as a portfolio as it did in Houston with a CB Richard Ellis team. Equity Residential didn’t return telephone calls by deadline to discuss its play. Local brokers say Equity isn’t exiting Texas, but merely is weeding all class Bs and older assets from its portfolio.

Reliable sources say three of nine listings in Houston have been sold in recent weeks as one-offs despite coming to market in portfolio fashion. According to its website, Equity has letters of intent for 2,456 units in Houston, with yet another 644 units uncommitted. In Austin, it has two properties totaling 478 units up for sale with CBRE and Apartment Realty Advisors.

The McCord portfolio’s silver lining is it’s a value-add deal like the Equity disposition. “Everyone today wants value-add,” Balthrope says. “The portfolio is a solid class B built in the 1980s after asbestos and lead paint. You’ve got good bones.” The upside lies in future rent hikes after moderate upgrades to interiors, including appliances, in a mix with units averaging 732 sf, Balthrope says.

In Dallas/Fort Worth this year, there have been several class A portfolios and clusters of class Cs come up for sale, but class B deals have been relatively few and far between when it comes to portfolios. Local brokers say it’s not a lack of product as much as it is a cycle and a high sensitivity about submarkets by Dallas buyers, in particular.

“It’s a reflection of the much lighter inventory for sale in 2007 versus 2006 and 2005,” assesses Don Ostroff, senior director for Cushman & Wakefield of Texas Inc. Roughly $4 billion of multifamily assets changed hands in the two-year period. It’s a noticeably different scene this year. “There’s no special rhyme or reason,” he says.

There are clusters of two, three and four properties about to hit the market. The Santa Monica, Ca-based US Advisor LLC has a half dozen coming up for sale in Greater Dallas after cutting a portfolio loose in Houston.

Phoenix-based Hendricks & Partners’ associate partner Tom Burns and senior investment adviser Jay Gunn say the striking differences in the region’s submarkets are largely to blame for the absence of class B portfolio sales this year. “They are more submarket sensitive here than in Houston,” Burns says. “Most found out portfolios needed to be bunched by quality and location.”

Gunn adds many sellers also see more value in separating assets rather than bundling them despite the ability to save on transaction fees. In addition, class B buyers are more entrepreneurial, but they also aren’t in the risk-taking game on a portfolio basis.

Irvine, CA-based Bascom Group has bought portfolios in Tucson. And, it’s selling one in Phoenix. But Bascom’s neither bought nor sold portfolios in Dallas. “We’d look at a portfolio, but we’d still look at each deal individually,” Ryan Akins, Bascom’s regional director in Texas, tells GlobeSt.com. “And, we’d add up the values to make an offer. We don’t put any type of premium on a portfolio buy.” When it’s time to sell in the Dallas area, he says it’s more likely to be clusters rather than a portfolio. “It’s tough because there is such a variety of submarkets,” he says.