- Oct 10, 2011
By Keat Foong, Executive Editor
HighPoint Holdings LLC, a real estate private equity firm, provides a lesson in how it is still possible to acquire Class A apartment properties at discounts in today’s markets.
The firm recently purchased a 532-unit planned apartment community in League City, Texas, for more than $40 million, said Jeff Brooks, HighPoint CEO and founder. The upscale Class A apartment property, which was built in 2009, was being sold because the investment did not meet the returns expectations of the original owner within the given timeframe, Brooks explained.
“In the current cycle, we are still seeing those opportunities in which sellers are having to deal with issues that they cannot solve,” says Brooks.
Brooks gives much credit for HighPoint’s success to the firm’s long-standing operating partner, the seasoned Atlanta-based apartment company JMG Realty. As a private equity firm, HighPoint was formed in 2002, but its top executives have relationships with JMG going back to the late-1980s, says Brooks. Operating in the markets on a day-to-day basis, JMG helps HighPoint identify acquisitions and sales opportunities. Additionally, as in the case of its recent acquisition in League City, JMG sets to work in “extracting value” from properties HighPoint acquires, utilizing its economies of scale to realize savings.
HighPoint says it has facilitated over $500 million in closed real estate transactions. It seeks an IRR of 20 percent and typically likes to hold its properties for three to five years to enable it to stabilize the asset and establish a trailing NOI, says Brooks. Many of the properties HighPoint acquired recently were well-managed by the previous owners and well-occupied. However, the properties were “distressed” in so far as the current partners needed to recapitalize the assets for some reasons. “We have been able to acquire extremely top-tier properties at deep discounts,” says Brooks.
Brooks sees investment opportunities in Florida again. The firm’s footprint covers Texas, Georgia, Virginia. HighPoint is now moving back into Florida, particularly Tampa and Jacksonville, after selling off its properties in the state in 2005 and 2006 and sitting on the sidelines for four to five years. “We think it is time to redeploy and move back into Florida.”
Even in its Class A business strategy, HighPoint aims to stay ahead of the curve by constantly looking ahead to the next business cycle. For example, when it considers an acquisition, the firm is very observant about the land around the property as it is aware that the next development cycle may not be long in coming. And “we go in and buy before the market is a hot commodity with pensions,” says Brooks. “By the time they come in, we are already well positioned in the marketplace.”
Finding opportunities in the markets also depends on the good relationships that JMG has forged through the years, notes Brooks. “We do not play with brokers and put multiple letters of intent and hope they stick.” Instead, many of the opportunities are obtained from “whispers in the ears.”