Security Properties’ Seattle Sale Completes 1st Fund

By Keith Loria

Security Properties has sold 700 Broadway, a centrally located, highly visible mixed-use apartment and retail property on the north end of the Broadway retail corridor in Seattle’s Capitol Hill neighborhood.

“Capitol Hill was and is one of the densest residential neighborhoods in Seattle and immediately to the north of the property, the zoning stepped down,” Ed McGovern, Security Properties’ managing director of capital markets, told MHN. “The property’s visibility and pedestrian traffic bolstered the 10,000 plus square feet of retail below the properties 59 units. It is well served by transit and surrounded by excellent restaurants.”

The property marked the last of 17 assets that comprised the firm’s first closed-end discretionary multifamily real estate fund. In six years, 2,471 apartment units across four states, totaling $392.5 million, was successfully renovated and sold at attractive returns. The $20 million invested into Fund I returned a net $48 million.

“Our strategy for the fund was to acquire, with institutional partners, a range of properties that were well positioned for rent growth while being of a size that was both efficient for operations and management and in the acquisition size range of a broad group of buyers,” McGovern said. “The fund was designed to allow private investors to get access to institutional quality investments on a geographically diversified basis. These investors were able to share in our attractive profit splits once we exceeded to our institutional limited partners targeted returns.”

Enhancements to properties

Each of the properties in the Fund were enhanced thanks to renovation, rebranding and managerial oversight by Security Properties and its in-house property management affiliate, Security Properties Residential.

According to McGovern, by using moderate leverage and spreading investors’ capital across 17 different properties, Security Properties was able to deliver development-like returns without permitting, construction or leasing risk, all while generating continuous quarterly distributions throughout the fund’s six-year hold.

“At a time when other funds were promising 20 percent IRRs, we attempted to set investor expectations more in line with the long term multifamily real estate norm of 12 to 14 percent net IRR,” he said. “Our fund’s net returns to investors, on a net basis, were in excess of 33 percent and every asset was sold at a profit. We were lucky to have investors who were willing to place their faith in us and very gratified that we delivered on what we promised.”

Currently, Security Properties is on its fourth fund, which is an institutional separate account that is close to being fully deployed.

“We continue to work with our private investor base on deals that fall outside of this investment criteria and will continue to partner with a group of long-term high-net worth investors to find and fund new opportunities,” McGovern said. “We have a sizeable, integrated organization that invests in mid-rise and high-rise apartment development in Seattle, Bellevue and Portland, an affordable housing group that invests in low income housing tax credit properties nationwide, and market rate acquisitions group that invests in existing apartment properties with the goal of renovating them from Nashville to the West Coast.”

These groups are supported by in-house construction management and a very sizeable property management affiliate called Security Properties Residential.