Bethany Group Investing $478M Into Phoenix Plan

(Read more on the multifamily market.)

PHOENIX-In a record-breaking deal, the Bethany Group LLC has paid $427.5 million to Bascom Arizona Ventures LLC for a 12-property, 5,178-unit portfolio in Greater Phoenix. The new owner will spend another $50 million in the next two years to glean the balance of the value-add that Bascom left as sale bait.

The transaction, taking 60 days from contract to close, bested last year’s record-setting seven-property hand-off by $19.1 million and 707 units. Based on Colliers International’s fact-checking, the Bethany-Bascom trade is the largest in the state, but not in the brokerage house’s history.

Bascom collected its reward of $82,561 per unit from a three-year assembly of class B and class C properties built between 1973 and 1996, all but one renovated last year. The seller had invested $44.5 million into overhauling the assets, focusing on exteriors, and implementing repositioning strategies, including re-branding if needed.

The new owner, with a similar MO to Bascom, has a team on the ground already gaming out the overhaul plan for the interiors. “It was almost like they gave me a year’s head start on what I usually do,” Greg Garmon, CEO of the Irvine, CA-based Bethany Group, tells GlobeSt.com.

To cut to the quick, the portfolio’s occupancy is 91%. The average monthly rent is about $800. By Garmon’s projections, the additional upgrades could yield another $140 per month per unit over a two-year period, bumping the assets to class B plus and class A minus status. “With the values and the locations, it’s going to be big money at the end,” he says. And the anticipated hold is three to five years, minimum.

Bascom brought the assets to market with three brokerage houses, initially looking for individual or cluster buyers. In late February, Colliers senior vice president Cindy Cooke suggested a portfolio sale. “I felt in my heart it was the quickest and least complicated way,” she says. “It just seemed to me that this was the most efficient way to make this happen.” She also had brokered deals before for Bethany and knew it hit the sweet spot.

Jerry Finney, co-managing director of Bascom Arizona, estimates the package drew at least 40 offers, some for one, some for clusters and two interested in the whole shebang. “When the dust cleared, Bethany was not the highest, but we decided to go with them because of their history for closing,” he says. “They’re good closers.” The reality is Bethany has closed 26 of 27 deals, many exceeding $100 million.

Bascom put the Greater Phoenix portfolio on the market after turning its attention to Tucson. Finney says the buying isn’t done, but none of the $427.5-million gain from the free-and-clear sale will go into 1031 exchanges. In fact, he confides, it’s all been distributed to the mix of Bascom partners.

Bethany made the close with a private equity investor. The New York City-based Lehman Bros. stepped up with 90% financing, including a 20% mezzanine piece, according to Garmon.

Bethany bought its first piece of Phoenix real estate in 2004, amassing about 1,000 units until now. Garmon says the portfolio buy clearly represents Bethany’s belief in Phoenix today and the future.

The portfolio pieces predominately are located in “strong infill, good drive-by locations,” Garmon says. Other buying perks included concessions’ burn-off and the “loss to lease” or the difference between old versus new contracts. The complexes, predominately one- and two-bedroom, have unit averages ranging from 394 sf to 1,029 sf.

The full property list is below, but two complexes were owned by Bascom and Cleveland-based KeyBank Real Estate Capital. Rockwood Capital LLC of Greenwich, CT was Bascom’s partner for seven assets. And the balance was solely owned by the three-year-old Bascom Arizona Ventures, a joint venture between Irvine, CA-based Bascom Group and Multifamily Arizona Advisors LLC of Scottsdale, of which Finney and Glenn Daiutolo are co-managing directors. Bascom Arizona still owns and manages 4,000 units in the state.

Bascom had local firm Morrison, Ekre & Bart Management Services Inc. overseeing the properties. Bethany has an in-house property management team.

Cooke was the lead broker for Bascom and brokered the sale to Bethany. She and Colliers’ vice president Brad Cooke listed part of the package. Other listings were held by CB Richard Ellis vice chairmen Sean Cunningham and Tyler Anderson and first vice president Jack Hannum plus Alon Shnitzer, a senior associate with Marcus & Millichap Real Estate Investment Services.