B and C Level Apartments May Prove To Be A More Stable Investment In A Weak Economy; CMS Buys Out Credit Suisse First Boston's Position in National Apartment Portfolio.
NEW YORK--(BUSINESS WIRE)--Nov. 14, 2001
Grubb & Ellis Company (NYSE:GBE), a business advisory firm, has arranged the re-capitalization of a $181 million apartment portfolio. The portfolio of apartments owned and operated by Fifteen Group of Miami was re-capitalized this week by CMS, a Philadelphia based investment fund, which invested approximately $29 million, replacing the equity and mezzanine capital of Credit Suisse First Boston.
The $181 million portfolio of B and C level apartments includes 24 apartment communities totaling 6,868 apartment units, located across the U.S. in major metropolitan markets such as Atlanta, Dallas, Houston, Miami, San Francisco, Sacramento, Tampa, Birmingham and others.
The deal, nine months in the making, was brokered by Herb Chase, Curtis Palmer and John Brown (all senior Vice Presidents) with Grubb & Ellis Company, and may point to a larger trend in the real estate market. "What we are seeing is that in times of economic volatility, like we are experiencing now, B and C apartment properties may prove to be a more stable investment," said Chase. While B and C properties may not experience the rapid growth or command high rental rates, they do appear to have a more stable tenant base and offer less downside risk.
Keith Misner, the Managing Director of the Multi-Housing Investment Group with Grubb & Ellis agrees. "B and C level apartments usually have more blue-collar type residents who earn a modest, but steady income. They tend to remain residents for longer periods of time, which keeps tenant turnover and vacancy rates down. Renters in B and C level properties may hold off planned home purchases and remain in cost effective apartments longer, thus helping to strengthen demand," he added.
According to a report by the National Multi-Housing Council, the national demand for apartments has grown steadily over the past few years and indications are that this trend will continue. And while the higher end of the apartment market may experience higher returns in key markets that are expanding, they can also feel the pinch when those markets collapse. For instance, the recent collapse of the tech heavy dot com market in the San Francisco Bay Area is now affecting the higher-end apartment market, which is experiencing higher vacancy rates and rent reductions than compared to B and C communities.
According to Chase very attractive "cash-on-cash" returns on investment for the B and C apartments are available, between 12 and 16 percent, due to high levels of liquidity and historically low interest rates.
Herb Chase -- Grubb & Ellis, Senior Vice President -- Atlanta, 770/552-2444
Keith Misner -- Grubb & Ellis, Managing Director -- Multi-Housing Investment Group, 202/312-5752
Mark Sanders -- Fifteen Group, Partner, 305/538-8315
Jeff Rodder -- CMS, 215/246-3022
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|Date:||Nov 14, 2001|
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