The Praedium Group Buys Half a Billion in Assets in First Half of 2011

By Barbra Murray, Contributing Writer

New York—The Praedium Group has been in a bit of a buying frenzy, as evidenced by its activity in the market during the first half of the year. Acting through The Praedium Fund VII L.P., the New York City-based national real estate investment firm snapped up assets, predominantly multifamily, valued at an aggregate $500 million in the first six months of 2011.

Praedium’s acquisition strategy is about much more than just acquiring apartments. “We’re buying apartments directly, we are buying debt that is distressed or in default, and we’re working with current owners to recapitalize their existing properties,” Russ Appel, president of Praedium, tells MHN.

The coast-to-coast shopping spree has left Praedium with approximately 3,600 additional apartment units in its vast and varied portfolio. While the company covered a lot of geographical ground, there was nothing haphazard about the endeavor; Praedium kept its focus on value-add assets located in strong metropolitan markets. Its investments included the 256-unit Skyline Heights in Daly City, Calif., roughly 15 miles south of San Francisco, and the 202-unit Shenandoah Apartments approximately 20 miles south of Minneapolis in Shakopee, Minn. Praedium acquired both properties from AIG in separate transactions. Praedium also acquired an $18.5 million preferred equity position in AVE Union, a 227-unit complex in Union, N.J., which, with its location directly adjacent to the Union Train Station, sits just a 30-minute ride away from Midtown Manhattan.

Indeed, multifamily has led the charge in the commercial real estate industry’s post-recession recovery. However, while many investors are focusing on multifamily properties sited in areas where the apartment market is being bolstered by strong employment numbers, Praedium is keen on apartments for other reasons.

“Our general thinking is that the apartment sector will see increases in demand independent of job growth, and we think that for three primary reasons,” Appel says. “One, demographics, purely because the echo boomers are hitting the age that has the highest propensity to rent. Second, we believe home ownership rates are moving back to historical norms and that creates a lot of demand. And third, because of pent-up household formation demand. So we’re not necessarily betting just on job growth. And, in fact, I think over the past four weeks we’ve seen that the market has become less optimistic on economic growth. Again, our big thinking for this sector is demand growth independent of job growth.”

While Praedium is not being guided by job numbers, the company certainly is not suggesting that increased employment will not have a notable impact on the apartment market. “My point is, we would have demand growth not dependent on job growth, but job growth would turbo-charge demand growth.”

Praedium is hardly done hunting for multifamily opportunities across the country. The year isn’t over yet and the company has the funds to continue its buying binge; Praedium is not hindered by the still frosty credit markets. When leveraged, the $900 million Praedium Fund VII has $3 billion in buying power.