Acquisition Strategy

Pacific Property Assets (PPA) provides long-term affordable housing, enabling investors to invest via secured promissory notes backed by existing apartment buildings. MHN Executive Editor Keat Foong talks to Michael Stewart, CEO, about the effects of the economic crisis.How has your value-added acquisition strategy changed? We are still looking at value-added properties. Most fall into the current status of Class C to Class D properties. The principal change is that today we are looking at properties that typically have greater issues with vacancy and deferred maintenance. We have not changed our expectation of excellent returns. PPA is still looking for capitalization rates of 10 percent or above, following renovation. As a compensation for present economic conditions, we’ve revised our model to allow more rent concessions and higher vacancy rates. We’re acquiring properties that have delinquent loans and using those loans to fund a good portion of the acquisition cost. Today it’s very difficult to obtain new financing that makes sense. Is this a time to sell or to buy—or neither? And do you see foreclosed multifamily properties as a good investment? The bottom may still be six to 18 months away, although we feel that most of the air is already out of the market. It’s a good time to buy—if done carefully. Today’s transactions, especially those involving distressed assets, take a lot of time to negotiate and close.There are certainly more distressed properties today—and they can represent great opportunities. However, the key in turning these distressed properties into smart investment opportunities is putting into place a strong, local management team that will properly run these assets. To comment, e-mail keat.foong@nielsen.com.