TODAY’S DEALS: Marcus & Millichap Sells Two Student Housing Communities

Marcus & Millichap brokers the sale of two southern student housing communities; ARA arranges the sale of a 180-unit community in Phoenix; and George Smith Partners completes a challenging $4.2 million refinance of an SRO property.

University Crossing

Orlando, Fla.—Marcus & Millichap’s Orland office has successfully closed the sale of two student housing communities. The combined sales price was $39 million. Eagle’s Trail Apartments, a 216-unit property in Hattiesburg, Miss., sold for $20 million. University Crossing, a 144-unit community in Ruston, La., sold for $19 million.

Both communities were sold by Ken Dixon, a private investor who was represented by Ray Turchi, a senior associate at Marcus & Millichap. University Crossing was picked up by a private investment group. Eagle Trail Apartments was bought by a large student housing REIT.

Eagle’s Trail Apartments is located one mile from the University of Southern Mississippi. The community was built in 2007 and contains 792 rooms situated in 16 stone-veneered three-story buildings. Units are leased by the bedroom.

University Crossing is located across the street from Louisiana Tech University. The community is comprised of 12 stone-veneered buildings that contain 132 four-bedroom apartments and 12 two-bedroom apartments. The units, which are also leased by the bedroom, are currently 92 percent occupied.

ARA arranges sale of $10.5M community in Phoenix

Paradise Foothills

Phoenix—The Phoenix office of ARA has arranged the sale of Paradise Foothills, a 180-unit community located at 12231 N. 19th Avenue near North Mountain Preserve in Phoenix. The property was sold by an entity formed by the Registered Holders of Wachovia Bank Commercial Mortgage Trust 2007-C30 to a company formed by El Dorado Holdings Inc.

“The Paradise offering was very active, as evidenced by the full price closing,” says Brad Goff, a principal at ARA. “The market recognized the value to replacement cost, improving operations, strong location and benefit of a ‘value add’ opportunity.”

Paradise Foothills is a gated-style community that was built in 1985. Community amenities include two pools, picnic areas with grills, a business center and two laundry centers.

George Smith Partners completes challenging $4.2M refinance of SRO property

Los Angeles–Commercial real estate investment banking firm George Smith Partners has successfully arranged a $4.2 million refinancing loan for a downtown Los Angeles 196-unit Single Resident Occupant (SRO) apartment property, according to Vice President Bryan Shaffer, who led the loan origination process for GSP. Originally built as a hotel in 1910, the historic property also features ground-floor street-front retail.

According to Shaffer, most lenders are not comfortable financing SRO properties because of the perceived additional risk over other types of multifamily housing. SROs are essentially studio apartments, but they provide residents with shared bathroom and kitchen privileges. In the past, many SROs were operated as affordable daily-stay hotels and often had a negative impact on the surrounding community. Today they frequently serve as one of the last affordable housing options in major urban areas, offering more stability for lenders by operating as affordable apartments, while reducing the negative impact on the area they serve.

“This property was one of the worst projects in downtown Los Angeles, with many characteristics that made it undesirable to potential lenders, requiring our expertise and industry relationships at George Smith Partners in order to find suitable funding,” explains Shaffer. “Most challenging was that nearly 99 percent of lenders are unwilling to lend on SRO properties. To make matters more complicated, because the property is under major rehabilitation, it is 100 percent vacant and was in the Rent Escrow Account Program (REAP) for violating various safety codes as a result of severe neglect by the previous property owner. Properties in the REAP program carry various legal burdens with the City of Los Angeles, making them extremely undesirable candidates for financing.”

Several prospective buyers tried to arrange bond financing on the project but were unsuccessful. Shaffer has a background in affordable multifamily projects and tax-exempt bonds financing, suitable for understanding and closing this deal.

“Unstable properties like this one can usually only obtain expensive bridge or hard money financing. The key to completing and achieving such an attractive loan for our client was not getting side tracked by all the reasons this project could not be financed,” Shaffer explained. “Instead, we focused on the fact that the new owners were extremely experienced with multifamily properties, and when the renovations were complete and the property was fully leased, it would be a very valuable investment that would have a very positive impact on the area.”

George Smith Partners arranged a 10-year term loan priced at 6.25 percent fixed with 30-year amortization and a step-down pre-payment penalty prior to stabilization.

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