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PALM DESERT, CA-HG Capital of Menlo Park has acquired a bank-owned project of 20 finished townhomes and 227 finished lots here for 15% of the outstanding principal balance and plans to market both the units and the lots for sale. Ash Baraghoush, a vice president at HG Capital, tells GlobeSt.com that the company plans to market the finished townhomes over the next 12 to 18 months and expects to sell the lots over the next 24 to 36 months.

The project, called Monterey Ridge, is a 20-acre development on 35th Avenue between Monterey Avenue and Dinah Shore Drive. In addition to the townhomes and lots, it includes a completed 7,000-square-foot clubhouse and pool. HG acquired the project in partnership with Los Angeles-based Global Investment and Development on an all-cash basis with an initial closing period of two weeks.

Baraghoush says that, other than some minor interior work, the 20 townhomes are ready to be sold and are in move-in condition. HG plans to list the units with a local realtor and sell them on an individual basis.

HG underwrote the deal assuming a hold period of up to 24 months for the finished units and 60 months for the lots, but it expects that the finished townhomes will sell within 12 to 18 months and the lots within 24 to 36 months. The company is prepared to sell the lots sooner if it gets a suitable offer. “If we receive an offer that makes economic sense, we would be willing to entertain a sale at that point,” Baraghoush says.

HG believes that the finished lots will sell to a home builder or home builders, either in bulk or in phases, based upon its analysis of the market. “We believe that demand for housing will increase over the next 12 months,” Baraghoush explains. “Based upon the supply of finished lots, we feel comfortable that demand will increase in 24 to 36 months from now as home builders begin to acquire finished lots as the supply of existing residential product dissipates.”

Baraghoush adds that the acquisition provided HG the opportunity to own finished lots at a deep discount to infrastructure costs. “Given our basis, the asset’s location and limited inventory of finished lots,” he says, HG expects the asset will yield strong returns.

The acquisition is the third investment between Global Investment and HG Capital, which is looking to deploy approximately $50 million of equity in 2010. A majority of HG’s recent transactions, such as Monterey Ridge, have been acquired on an all cash basis and the firm expects that to be the case as opportunities arise for the company to close quickly on an all-cash basis.

Baraghoush tells GlobeSt.com that HG Capital, which focuses on properties in the Western US, typically invests in projects with an expected term of two to eight years, which allows it to be flexible with respect to longer-term strategies. The firm focuses on residential, multifamily, office, industrial and retail products. However, it has also invested in specialty product types such as medical office and self-storage.

HG is willing to look at deals of up to $50 million, but deal size depends on the type of leverage the asset is able to support. The company looks to acquire opportunistic and value added investments, typically in conjunction with an experienced partner. HG will generally provide 90% to 100% of the required capital and enters into a profit/promote structure tied to project performance.

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