INSIDE THE DEAL: Berkshire Property Advisors Purchases Newly Completed Apartment Property for $47.5M

By Keat Foong, Executive Editor Costa Mesa, Calif.—What is the solution when developers find out that a new construction can qualify for only a lower takeout loan due to the declining market? They can sell interests to more partners. That is the solution chosen for Glo, a 201-unit, mixed-use apartment community in downtown Los Angeles, brokered by Moran & Co. Boston-based Berkshire Property Advisors LLC purchased the property for $47.5 million, or $236,318 per unit, from a joint venture between Vancouver, Wash.-based Holland Partners and other equity participants. Both Berkshire and Holland will now be co-general partners in the deal. Holland will also manage the property. The property was coming out of construction loan, explained Thomas Moran, Jr., senior broker with Moran & Co., who represented both the seller and the buyer in the transaction. However, although the original construction loan was $47.5 million, the newly completed property qualified for a take out of only $35.3 million due to the new market realities. The existing partnership was unable to meet the capital call, and needed the entrant of new investors. But the property was also a desirable asset. Kevin Mignogna, vice president of Berkshire Property Advisors, said Berkshire was attracted by the opportunity to acquire a core asset with favorable bond financing at a price well below replacement cost. Glo is financed with low floater tax-exempt bonds and also carries $3.8 million in tax credits. “The bond financing is what really makes this deal because it will allow us to generate higher cash-on-cash returns compared with conventionally financed deals,” said Mignogna. The property is just two blocks west of L.A.’s central business district. The Class-A apartment property, which was developed by Holland Partners and constructed by White Residential, Inc. in 2007, consists of two, five-story buildings located at 1050 Wilshire Blvd. The two buildings are connected by a sky bridge. Apartment units are built over two or three levels of concrete garage parking offering a total of 353 spaces.“The sale price of $47.5 million represents a 6.5 percent cap rate based on the buyer’s first year of stabilized income,” according to Moran, Jr.  “At the time of sale, the buyer recognized that the in-place income was not fully realized due to the recent completion of the lease-up program and the vacant commercial space. The buyer’s first year numbers represent a more stabilized property.”