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Behringer Harvard launched its non-traded public REIT, Multifamily REIT 1 in the halcyon days of 2007 with the goal of raising $2 billion in equity and then investing it in mezz and equity apartment developments with an option to buy upon completion. Much has changed in the market since then, it hardly needs to be said; along with times the REIT is making a few shifts as well. Namely, after some ten mezz and equity transactions, this summer it decided to shift its investment strategy, according to the Addison, TX-based REIT’s COO Mark Alfieri. “Moving forward our focus is on acquiring existing apartment properties — primarily due to the paradigm change in the credit markets that we have experienced and the rising cap rate environment which we are in,” he tells GlobeSt.com. Simply put, buying relatively new buildings is a better deal than financing their construction. GlobeSt.com spoke with Alfieri about the REIT’s new plans.

GlobeSt.com: Tell me more about your new investment strategy.

Alfieri: We think we can buy properties at prices that are 60% to 70% what they were at their peaks. We are targeting a return of about 7.5% , with returns lower in the coastal markets and higher in markets like Texas or Atlanta. The fund will likely buy 60 to 80 properties with concentrations in 10 to 12 markets over a two-and-a-half year time period. The buildings will be relatively new – not older than five years.

GlobeSt.com: What are you planning to do this year? I see you just acquired a luxury apartment in Houston – the Verandah at Meyerland.

Alfieri: We are looking to acquire $1.5 billion worth of luxury multifamily properties by the end of 2009.

GlobeSt.com: Will you be using leverage for that? Also, is this what you have raised since 2007?

Alfieri: Yes. We have raised $320 million for the fund and continue to raise at a rapid pace. We can leverage at between 50 to 60 percent of value. We hope to have the funds raised by the end of 2010 but we can go beyond that if necessary. We raised about $130 million in 2007 as a private fund. We closed fund raising when to go through the public registration process, which took about nine months. We didn’t start raising money in any significant amounts until January of this year.

GlobeSt.com: I am assuming that leverage will be coming from Fannie and Freddie?

Alfieri: Yes, about 80% of it. It is very attractive money with rates being so low.

GlobeSt.com: What markets are you targeting?

Alfieri: We have a keen focus on California- San Francisco, San Jose, Los Angeles, and San Diego. We are also looking to acquire in Portland and Seattle. And we are currently looking at investment opportunities in Washington, DC, Boston, New York and Chicago.

GlobeSt.com: Is there one city that stands out?

Alfieri: The best value opportunities are being found in southern California, where there has been a lot of distress related to this recession and the high unemployment. We are seeing some valuations that are very attractive relative to replacement costs.

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