Tag Archives: BH Properties

Op-Ed: Can low interest rates harm Arizona market?

Andrew Van Tuyle, BH Properties

Andrew Van Tuyle, BH Properties

By Andrew Van Tuyle and Steve Jaffe, BH Properties

There are times in your life when something wonderful drops in your lap – like an adorable Great Dane puppy on Christmas morning. The puppy is so cute that you fall in love immediately, and never think about how large that Great Dane will become or how that dog will take over your life, destroying your house in the process. The current interest rate cycle may just be like that sweet, irrepressible puppy – impossible to resist but possibly life changing, in a bad way, as the market starts to move. Like the commercials have been telling us, interest rates are at an all-time low – and even more so for commercial real estate.

Steve Jaffe, BH Properties

Steve Jaffe, BH Properties

Rates are low today but, the one thing we know for sure, interest rates will go up eventually. Whether it’s 2015 or five years from now, there is a good chance that much of the debt that is being originated now will be paid off with debt at higher interest rates. If rates are higher or debt is not widely available (think 2009), refinancing could prove to be difficult without the dreaded rebalancing.  Many transactions being structured today are betting on rent growth to increase value over the hold period, but interest rates are still at historic lows and many buyers aren’t considering refinance risks when structuring transactions.

2014 saw the highest sales volume activity since 2008 for multifamily assets. If interest rates are any indication, 2015 could prove to outpace those numbers because of decreased borrowing costs. From year-end 2013 to year-end 2014, the 10-year treasury, a key indicator of borrowing rates for real estate, dropped 86 basis points from 3.03 percent to 2.19 percent. That trend has continued so far in 2015 with the 10-year treasury dropping as low as 1.72, and as a result decreasing 10-year fixed rate debt options for multifamily to 3.40 percent or lower. In addition, some lenders are offering long-term interest only options of five to ten years. With cheaper debt options available, buyers can afford to pay a higher price and still achieve a market yield. In other words, it can temporarily justify overpaying.

Interest rates have a correlative impact on cap rates. Historically low interest rates have driven cap rates to their lowest level since the start of the recession. If borrowing costs go up, cap rates will too, and owners will either increase net operating income or quickly lose value. The fairly sudden drop in the 10-year treasury has created an abundance of opportunity for sellers looking to take profit, but max leveraging with interest rates this low could spell disaster for those looking to refinance in five to 10 years.

For example, if a buyer were to acquire a $10 million property at a 5.0 percent cap rate at today’s interest rates, they would likely be limited to a 75 percent loan to value or $7.5 million in loan proceeds. If rates increase to where they were a year ago, the debt proceeds will likely be constrained by a 1.2 debt coverage ratio, which would decrease the debt proceeds to $6.6 million and require the buyer to come up with another $900k in equity to buy the same property at the same price.

So what’s the lesson here? It’s critical to pay attention to the paw size of your sweet puppy – and be wary of the current low interest rate/high proceeds – you need not resist its draw, but anticipate the possible (and very likely) scenario outlined here.

About the Authors:

Steve Jaffe is the chief investment officer and principal, and Andrew Van Tuyle is the chief acquisitions officer with BH Properties, a Los Angeles-based commercial real estate investment company that focuses primarily on repositioning troubled assets in the industrial, multifamily, office and retail markets. With regional offices in Dallas and Salt Lake City, BH Properties has developed its own distinctive acquisition strategies in 15 states and become one of the repositioning experts in its core markets including California, Arizona, Nevada, Utah, Colorado and Texas.

Plaza SQ_PHOTO, WEB

BH Properties buys Plaza at Squaw Peak for $25M

On behalf of their client, IX CW Plaza Squaw Peak, LP, (an affiliate of Starwood Capital Group), Capital Asset Management announced today the successful sale of The Plaza at Squaw Peak, a 428,044-square-foot class-B office building, to BH Properties, a Los Angeles commercial real estate investment company. Located on 16th Street and Morten Avenue in Phoenix, this transaction represents BH Properties’ highest valued asset purchased to date.

Known for their ability to work with complex assets and create value, the deal was brokered on both sides by Capital Asset Management (Jason Hersker, Stephen Herman, Rachael Cisco and Scott Smith). BH Properties purchased the property from IX CW Plaza Squaw Peak, LP, who had acquired the asset as a part of a portfolio.

After interviewing a number of potential purchasers of this asset, the team chose BH Properties for its reputation in acquiring troubled assets and ability to close by year-end without a financing contingency.

Built between 1985 and 1987, the property consists of three separate office buildings set on a total of 24.15 acres surrounded by a 250-room Hilton Resort and adjacent retail amenities near the Phoenix Mountain Preserve.

Early on, the redevelopment team at Capital Asset Management identified numerous potential value added opportunities for a potential buyer, including a Class A office site and high-end condominiums, both of which would maximize the views of the Squaw Peak Mountains.

“The purchase of this office complex is a significant milestone in the evolution of BH Properties’ buying strategy,” said Steve Jaffe, chief investment officer and principal at BH Properties. “We carefully choose each property based on its value-add potential, and will continue to grow our portfolio, seeking out higher valued assets to apply this strategy.”

Fiesta Park

The value-add play in Phoenix’s multifamily market

By:  Steve Jaffe, Executive Vice President and General Counsel, BH Properties

 

Steve Jaffe is the executive vice president and general counsel for BH Properties, a Los Angeles-based commercial real estate investment company that acquires and maximizes the value of under-performing properties located throughout the country. The firm also has regional offices in Dallas, Texas and Salt Lake City, Utah.

Steve Jaffe is the executive vice president and general counsel for BH Properties, a Los Angeles-based commercial real estate investment company that acquires and maximizes the value of under-performing properties located throughout the country. The firm also has regional offices in Dallas, Texas and Salt Lake City, Utah.

During the most recent Great Recession, Phoenix saw property values drastically decrease and apartment owners lose tenants due to lost jobs. The domino effect resulted in owners dropping rents to maintain occupancy, which, in turn, caused them to lose out on money they would have spent to reinvest in and improve their properties, leading to further tenant loses. For many of the multifamily properties in the B- to C classes, this downward cycle was fatal.

In 2010, BH Properties stepped back into the apartment business with Arizona as its target market. The Los Angeles-based company brought its proven strategy of purchasing undermanaged or distressed assets at the appropriate price and turning the properties around in one of the markets that had been hit the hardest by the recession.

Fiesta Park in Mesa, Arizona was one such multifamily property suffering from long-term neglect and in need of BH Properties’ value-add approach. Recognizing its upside potential and believing the Phoenix market was (or would soon be) on the upswing, BH Properties purchased the complex in a short sale, making it the first purchase made by BH Properties after the market crashed almost three years earlier.

After purchasing the complex, BH Properties identified areas that needed to be restored and repaired in order for the asset to function properly and to draw new tenants. The 320-unit complex was 54 percent occupied at the time BH Properties went under contract to purchase the property and required extensive renovations to both the exteriors and interiors. Expenses were then prioritized in order to keep rents within reason to fit within the constraints of the C class property.  

To add value without losing sight of investment goals, the firm focused the majority of the renovations on improving common areas and individual units. The exterior of each building within the complex was painted with a fresh color scheme, the fence around the swimming pool was repaired and new furnishings were added, and outdoor lighting was installed throughout the complex illuminating areas that may not have seemed safe before. An archway was also built in front of the leasing office to increase its visibility and provide a welcoming entrance to the complex. The leasing office interior was updated and made more inviting. Individual apartment units were refurbished with better flooring, upgraded light fixtures and resurfaced countertops. For safety, walkways and staircases were improved.

With more than $1 million in renovations completed over an eight-month-time-period, BH Properties turned the neglected complex into a clean, safe, family-oriented living space. Shortly after the final touches were made to enhance the curb appeal, the complex saw occupancy grow to 90 percent from 54 percent at the time of purchase. Gradually, BH Properties was able to increase rents and improve the overall tenant profile.

The keys to success with value-add plays are patience and a true understanding of the market and not “over improving” an asset. Phoenix, like other major cities in the Sunbelt, held all the fundamentals for a great economy and continues to strengthen along with the recovery. In addition to the area’s unemployment rate coming in at almost one percent lower than the national average, recent reports  indicate a slight uptick in the median asking price per unit in the Phoenix market with an increase of 10.7 percent compared to last year’s prices.

BH Properties recognized the potential this business and family friendly environment had for a strong recovery across all sectors, especially the housing market, and employed its quick closing business model to take advantage of the primed opportunity. Purchasing Fiesta Park at the right price allowed the firm time and capital to make the necessary repairs in order to bring the complex back up to par, while the market gradually made a comeback.

 

 

BH Properties, WEB

BH Properties acquires Shasta Beverages warehouse in Phoenix

BH Properties, a Los Angeles-based firm that specializes in acquiring and repositioning challenged or distressed real estate properties, has purchased the Shasta Beverages, Inc. warehouse facility, located at 301 S. 29th St. in Phoenix, for $1.9 million. The all-cash deal closed in 18 days.

“This property presented a prime investment opportunity as we are actively pursuing properties in Arizona to grow our industrial portfolio,” said Steve Jaffe, executive vice president and general counsel for BH Properties. “Located in a high-traffic location, the warehouse is ideal for any number of businesses looking to expand in the Phoenix area and can accommodate a variety of uses. The purchase also highlights our ability to identify an asset, review all aspects and close rapidly which, in this case, was of concern to the seller.”

Centrally located near the Phoenix Sky Harbor International Airport, the 62,776-square-foot, two-story warehouse features three car spots for rail service and seven grade level truck doors with triple wide truckwell and dock levelers.

The demand for warehouse facilities continues to increase in order to meet the needs of not only online retailers, but also call centers and non-traditional tenants, looking for space near high-traffic transportation hubs. Reports indicate that vacancy rates have decreased in the second-quarter, due to a surge in net absorption across the Greater Phoenix area.

Kirk Jensen, executive vice president for DAUM Commercial Real Estate Services, represented BH Properties and Shasta Beverages in the transaction.

Gilbert Town Square

BH Properties Ends 2013 With Record Year Over 2012

BH Properties, LLC is reporting a banner year for the company with  $100M in transaction volume and $82M in acquisitions, a 57 percent increase over the previous year’s results.
“BH Properties had a very successful year in the purchase and sale of its properties across the nation,” said Steve Jaffe, executive vice president and general counsel of the company. “We are particularly excited about our Southwest ventures and what that will mean to our investment strategy in 2014.”
The company acquired properties in all of its major disciplines – multifamily, retail, office and industrial, and will continue to keep its “value-added” focus in its core markets like Arizona and California.  This past year also saw the firm move back into the Denver and Texas markets in acquisitions, closing two purchases, with additional purchases expected in 2014.
Some of 2013’s acquisition and disposition highlights include:

  • Gilbert Town Square: The $13.4 million late December purchase of the 159,000-square-foot Class A retail shopping center is situated within the highly affluent Phoenix submarket of Gilbert, Ariz.  Constructed in several stages from 2001-2004, the eight building asset has tasteful architectural nuances and strong curb appeal, indicative of the historical accents of the region.  Gilbert Town Square is anchored by Regal Theaters and is shadow anchored by Brunswick Bowling Lanes. The center’s prominent exposure along Gilbert Road has historically been a key to attracting national tenants such as Chipotle, Sport Clips and Pei Wei.
  • Richmond Office Property:  The $7 million sale, which was the first sale of the company’s assets in Virginia as a part of a more westward focus, involved an 181,000- square-foot office building sold to Shamin Hotels, which plans to reposition the asset as a flagged hotel.
  • Lake View Center:  The 106,345-square-foot Class A office property, consisting of two office buildings located in Ontario, Calif., was acquired for $13.8 million.
  • Terrace Park Apartments:  A 214-unit multifamily property, located in Phoenix, was acquired for $6.2 million.
  • Madera Court Apartments: The $9.6 million purchase, which was part of a portfolio sale, involved 286 units in Phoenix. This purchase marked BH Properties’ ninth multifamily property in Arizona in 24 months.
rsz_vista_ventana-1

BH Properties Acquires Vista Ventana For $10.2M

 

BH Properties, a Los Angeles-based commercial real estate investment firm that has a penchant for working through difficult transactions, time-sensitive closing factors and an expertise in repositioning real estate, acquired Vista Ventana, a 275-unit multi-family property at 3221 W. El Camino Dr. in Phoenix.

“With two of our other Phoenix properties, Smoke Tree and Biltmore, nearby, we plan to manage Vista Ventana to take advantage of the economies of scale that we can achieve by cross-marketing, sharing staff and promoting properties to new visitors,” said Executive Vice President of BH Properties Steve Jaffe.

“This acquisition perfectly fits into what BH Properties is looking to accomplish in the Southwest. We expect to add two more apartment complexes by the end of 2013.”

According to Jaffe, the seller had made a significant amount of improvements including interior upgrades, exterior painting and a roof renovation while also increasing occupancy to 90% prior to closing.

“This stable asset mirrors most of our Phoenix multi-family assets and should not require much in the way of improvements,” he said.

Since January, BH Properties has been extremely active in the Southwest, including the recent acquisitions of the 205 condominium units at Avalon Hills and the 214-unit Terrance Park Apartments both in Phoenix.

“This well maintained asset is a solid, long term type hold for us. We continue to view the Arizona B and C class apartments market as full of opportunity — despite the recent uptick in pricing. We hope our high level of activity will keep us at the top of all sellers’ lists,” Jaffe said.

BH Properties was represented by Karl Abert and Brad Pickering of Newmark Grubb Knight Frank, who also represented the seller, El Camino Vista, LLC.