By Hannah Madans

LARGEST MULIFAMILY DEAL SINCE 2006

Westwood-based Aragon Holdings has sold a portfolio of 36 apartment properties for $1.85 billion to Norfolk, Va.-based Harbor Group International.

The deal, spanning 36 properties and encompassing 13,243 units, is one of the biggest ever for an apartment portfolio.

The sale was announced Jan. 15.

“It’s monumental,” said Larison Clark, founder, chairman and chief executive of Aragon Holdings. “The largest multifamily transaction since 2016 and the fifth-largest ever. That’s a big deal.”

Clark, who founded Aragon Holdings as a private real estate investment and fund management company in 2008, said the time was right to make the deal.

“It’s the top of the market, and the only players that are buying these days have to be value-add and have to be able to improve this property somehow to make the property work,” Clark said.

The portfolio of properties stretches across several Sun Belt states, from Florida to Arizona. None are in California.

“The properties within this portfolio are in strong population growth markets with good employment drivers and overall good economic tailwinds,” Yisroel Berg, director of multifamily and managing director at Harbor Group, said in an email.

“The portfolio contains an attractive mix of markets where HGI already owns property in addition to new target markets for expansion,” Berg added.

The deal is part of Aragon Holdings’ sale of its entire $2 billion apartment portfolio. The company had sold a portion of its holdings prior to the Harbor Group transaction.

Clark said Aragon Holdings’ first batch of properties had mortgages coming due so the company sold them last year while seeking a buyer for the remaining portion of its portfolio.

Aragon Holdings said the suburban two- and three-story properties in the portfolio average 350 units each. Most are located near employment and transportation centers.

Harbor Group’s Berg said the company, “plans to invest a minimum of $90 million into the portfolio for a capital improvement and enhancement plan, equating to more than $6,000 per unit.”

Multifamily move

Dean Zander, an executive vice president at CBRE Group Inc., said the deal reflects the heightened demand for multifamily properties nationwide.

“We’re definitely still in an environment where multifamily is leading the pack as far as desirability from investors,” he said.

“(Aragon has been) in an acquisition mode since the middle of the 2000s and opportunistically looked around and saw they could refinance or sell at pretty attractive levels and let someone else take the properties to the next level,” Zander added. “It was well timed for them, and Harbor will do great with them.”

Newmark Knight Frank represented Aragon Holdings and helped secure debt financing for Harbor Group in the sale.

​NorthMarq Capital represented the seller for debt assumptions and defeasance. Meridian Capital Group advised the buyer.

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BY: Joseph Pimentel

California’s AB-1482, which takes effect in January, caps the amount landlords and owners of apartment buildings 15 years and older can hike rent to 5% plus inflation a year. The law ends in 2030, and was heavily promoted by Gov. Gavin Newsom. 

The new law will also make it harder for landlords to evict tenants by using “just cause” criteria, meaning landlords must now provide a reason for eviction, such as nonpayment of rent or criminal activity. 

In the months leading up to the passage of the bill, many stakeholders were sure of a doom-and-gloom outcome: building owners would start staking “for sale” signs in front of their property, and buyers would cancel deals. 

But so far, that type of knee-jerk reaction hasn’t occurred, at least not in Los Angeles, Marcus & Millichap Senior Vice President Investments Jason Tuvia said.  

“One thing we are not seeing are panic sellers,” Tuvia said. “We were expecting an uptick of sellers but we’re not seeing that. I don’t think the bill is as bad as they were expecting … I think people are taking a wait-and-see approach.” 

CBRE Executive Vice President Dean Zander said he didn't think AB-1482 would disrupt the multifamily market, because the new law is balanced for both the tenant and building owners.

"AB-1482 provides a level of certainty moving forward," Zander said. "Five percent plus inflation is just about right for tenants. That it is not gouging, and for building owners, it is not too restrictive." 

BY GREG CORNFIELD

The property traded for $856,000 per unit, a record for the community

Los Angeles-based Roka Properties has acquired a luxury multifamily property in West Hollywood for $20.6 million following an extensive renovation.

The Element WeHo at 1425 North Crescent Heights Boulevard includes one- and two-bedroom condo-style apartments, most of which feature an additional den or home space. Twenty-two of the 24 apartments were renovated.

Dean Zander and Chris Tresp with CBRE, which announced the deal, represented the seller.

Property records show the property was owned by two LLCs, including one tied to Eldad Blaustein, the CEO of New York-based IGI USA, which handles development in the U.S. for Izaki Group Investments. The LLC is also tied to Moshe Azogui, principal at Strategic Housing Partners. The owners purchased the property for $8.9 million in 2015.

“At $856,000 per unit, the sale of Element WeHo represents a record achieved in West Hollywood for a property of its size and vintage,” Tresp said in a press release. “Originally built in 1959, they were able to transform the 24-unit building into one of the premier, boutique-luxury multifamily communities in the submarket.” 

Zander noted that West Hollywood is home to several expanding entertainment companies that provide “continuous demand for the high-end apartments Element WeHo offers.”

For example, CIM Group’s The Lot campus includes both studio and office space, and includes tenants like Oprah Winfrey’s OWN Network, actor Will Ferrell’s Funny or Die production company, and Showtime Networks, which signed for 50,000 square feet in January. In October, Live Nation’s Ticketmaster pre-leased all 98,000 square feet at the third and final structure that is under construction at The Lot campus. 

Elsewhere in West Hollywood, a 1.9-square-mile city, Witkoff Group and Howard Lorber‘s New Valley Group landed a $300 million refinance for the West Hollywood Edition Hotel and Residences, which comprises a 190-room luxury hotel and 20 luxury residential condominium units. Also, Northwood Investors landed a $165 million refinancing of The London West Hollywood, a 226-key hotel.

CBRE Affordable Housing’s Tim Flint and Jeff Kunitz, along with Stewart Weston and Dean Zander of the company’s Newport Beach office, arranged the $63 million sale of Vizcaya in Santa Maria, Calif. Buyer Kennedy Wilson acquired the 236-unit fully affordable asset. CBRE represented seller Vaughn Bay Construction in the deal.

In September, CBRE’s Flint closed the $48 million sale of an affordable community in Yonkers, N.Y.

Located at 1720 S. Depot St. in the greater Santa Barbara area, Vizcaya has a mix of one- to four-bedroom units, averaging 940 square feet. All apartments are kept affordable by an LIHTC Land Use Restriction Agreement, limiting residents to those earning no more than 60 percent of the area median income. Ten percent of the units are set aside for those making 50 percent or less of the AMI.

In addition to standard amenities including a swimming pool, playground and community room, the 28-building property provides after-school programs and licensed childcare to tenants free of charge. According to Yardi Matrix data, Vizcaya last changed hands in 2007. During the past three years, the property has maintained an occupancy of 98 percent.

By Dennis Lynch & Georgia Kromrei

With a little more than 48 hours before the clock ran out, three of New York’s most powerful landlords made a desperate, last-ditch phone call to Gov. Andrew Cuomo. By that point, the real estate industry had already spent millions of dollars, hired seasoned lobbyists and launched media campaigns in an effort to eliminate the threat of historic tenant protections on 1 million apartments. Cuomo declined to kill the bill, and landlords across the state say billions of dollars in investment were wiped out overnight.

But across the country in Sacramento, a curious thing happened. The legislature on Wednesday passed AB-1482, a statewide rent control measure that will affect an estimated 8 million people, and top industry trade groups barely made a peep.

The California Apartment Association, which represents the owners of around 65,000 rental units in the Greater L.A. area, dropped opposition to the current form of the bill after negotiating to extend an exemption to units older than 15 years (lawmakers first proposed a 10-year limit), limiting vacancy decontrol, and restricting municipalities from instituting rent caps lower than the cap in AB-1482.

The CAA, which has pushed the state to loosen development restrictions in favor of denser residential development, declined to answer questions about AB-1482, which in most cases will limit rent increases to 5 percent plus inflation.

“CPI plus five percent is causing most people to breathe a sigh of relief, we can live with that,” said Dean Zander, an executive vice president and multifamily specialist at CBRE. “It’s not unfair, it’s not gouging, and I don’t see it affecting sales or values at all.”

Zander believes the measure could spark even more investment in the state because it provides some certainty to investors. “There’s no fear of the unknown,” he said. “We have a super strong market in California and knowing that 1482 passed, we know what to expect and we can underwrite for that.”
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By Kelsi Maree Borland

Southern California cap rates are among the lowest in the country. According to a new report from CBRE analyzing cap rates, the greater Los Angeles market and Orange County both ranked among the top 10 tier one markets for lowest cap rates in the US. Year-over-year, cap rates compressed across asset class types, but multifamily, which has already experienced substantial cap rate compression, pricing increased only 10%, the lowest of all asset classes in the two markets. Still, cap rates are continuing to trend down, a good sign of investment perspective in the greater Los Angeles area.

“There is an almost insatiable demand for apartment properties and a relative lack of new product is continuing to drive multifamily cap rates down,” Dean Zander, EVP at CBRE, tells GlobeSt.com. “The continued abundance and influx of capital has been one of the primary drivers in suppressing cap rates in Orange County and Greater Los Angeles. Additionally, debt pricing is still very attractive to investors. Other than certain pockets in the urban CORE, we are not seeing a lot of new construction in the pipeline in either markets, which makes the existing stock of product even more enticing to investors. Steady rent growth, helped by the continued increase in jobs and migration to both Los Angeles and Orange County has also been playing a significant factor in keeping cap rates low. Lastly, single-family homes are very expensive in these markets, which in turn begets a significant amount of the population to remain renters.”

While the low cap rates are a good sign that investors continue to be bullish on the greater L.A. area, they also come with some challenges for investors. “Underwriting has become much tighter in the low cap rate environment we are seeing in Los Angeles and Orange County,” says Zander. “Investors are favoring the stronger locations, and the assumptions that buyers are more laser-focused than ever on quality of multifamily assets. We have seen the slowing of deal volume, but this is less about a lack of demand but more due to the reluctance of owners to sell as operations are so strong.”

​As a result, suburban product is outpacing urban infill product. Investors are finding slightly better pricing and better returns in suburban markets. “There is more value-add potential in suburban areas, as new construction is limited. Investors are also learning that not all renters are millennials who want to live downtown,” explains Zander. “There is still a substantial number of renters in both Los Angeles and Orange County who value being part of suburban neighborhoods that are near good schools. Lastly, most of the new supply we are currently seeing is in urban markets, which are beginning to see concessions, something we are not seeing in suburban markets.”

​Zander expects cap rates are going to continue to compress, particularly as the cycle continues to mature. “I do believe there is more room for cap rate compression,” he says. “As investors flock to the safety of multifamily versus other investment opportunities, prices are likely to continue to climb.”

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New York-based Dalan Management acquired The Vue Apartment Homes in San Bernardino, CA for $37.4 million. The 197-unit multifamily community was sold by Irvine, CA-based FPA Multifamily.
 
Located at 1660 W. Kendall Dr., the property was originally built in 1988 and features five different floor plans that range from 800 to 1,030 square feet. Amenities include a pool, sundeck, business & student center, volleyball court, playground, fitness center, package receiving system and intercom-controlled entrance.
 
CBRE’s Stewart Weston, Dean Zander and John Montakab represented the seller.
 
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A joint venture between IDEAL Capital Group and Aegon Real Assets US closed on a major multifamily buy in Oceanside, paying $66.25 mil for Sunterra Apartments, a 240-unit ($276k/unit) asset located at 3851 Sherbourne Dr.
 
Sunterra is just a mile from Vista Way, the retail corridor for residents of Oceanside. The property is centrally located and in commuting distance to Camp Pendleton, Genentech Pharmaceuticals, UC San Diego, Coca-Cola, Legoland, and the Tri Cities Medical Center.
 
CBRE’s Dean Zander, Stewart Weston, John Montakab, and Kevin Mulhern represented the seller, a private investment group.
 
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By:
Dean Zander
Executive Vice President
​CBRE

The City of Los Angeles checks all the boxes for an excellent apartment owner environment. This includes a booming economy, expensive housing, meaningful job growth, and an abundance of Millennials and professionals. Los Angeles enjoys an immense and fast-growing high-tech industry, especially within the media, tech, aerospace and advanced transportation industry with the likes of Netflix, Google, SpaceX and Northrop Grumman. Los Angeles County houses the nation’s largest international trade industry, the nation’s largest manufacturing base, and an increasing amount of venture capital investment startups. A growing economy is almost always paired with escalating housing costs, and Los Angeles is no exception. More than ever, residents are driven to rental housing as homeownership is prohibitively expensive and not conducive to job mobility and flexibility.

Last year was a banner year for region’s apartment sector. The average market rent in the Los Angeles MSA has seen extremely impressive growth, increasing an average of 5.3 percent annually since the turn of the century, according to Axiometrics. This remarkable trajectory has been spurred by the extremely tight rental market, with annual occupancies averaging between 94 percent and 97 percent. Such indicators allow landlords to be extremely discerning when vetting tenants, which, in turn, provides safer income streams.

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