Properties’ Latest $56.5 Million Multifamily Acquisition Marks 18 Months Of Aggressive Growth Decron
LOS ANGELES, CA. February 2011 – Decron Properties, a diversified real estate investment company, has acquired The Madison at Town Center, a 264 unit multifamily community in Santa Clarita, California for $56.65 million. The purchase marks another milestone in Decron’s impressive acquisition streak of 1500 units in just 18 months, and signals Decron’s continuing status as an active buyer in the multifamily residential marketplace. Decron currently owns and manages 4300 residential units with another 550 units in its development pipeline. The company also manages 3.5 million square feet of commercial office and retail space located throughout California.
“We are actively looking for deals to expand our multifamily holdings, but there’s not a lot of product available that meets our investment criteria,” said David Nagel, President of Decron Properties. “We were excited about acquiring The Madison because it’s a premier property, priced well below replacement cost. Valencia is a phenomenal location as a burgeoning bedroom community with strong rental demand and attractive to first-time home buyers and young families because of its excellent schools.”
Built as a 341-unit apartment community in 2004, The Madison was subsequently converted into a condominium project in 2005 when it was purchased by Prado Town Center West LLC. Seventy-seven units were sold to individuals between 2006 and 2007, while the remaining 264 units, purchased by Decron, were converted to rentals.
The “broken condo” mix of owners and renters, however, precluded the use of agency and other conventional sources of financing, making the deal challenging for ordinary real estate investors. Decron utilized its longstanding relationship with Citigroup to help finance the deal. The attractive LIBOR-based Citibank financing will enable Decron’s investment to yield an initial 6% cash-on-cash return. Once the housing market stabilizes, Decron expects its investors to exit from the property with a double digit IRR of close to 20% due to its low cost per unit; Decron purchased the Madison units at approximately $215,000 each, roughly 40% below the average condo sale at the height of the market in 2006/2007.
Laurie Lustig-Bower of CB Richard Ellis represented the seller in the transaction; Decron represented itself.
Although it maintains and operates a sizeable commercial portfolio, Decron has specifically focused its recent growth on its multifamily platform. The addition of 1500 units over the course of 18 months represents a 40% increase in Decron’s multifamily holdings. Enhanced competition from REITs and pension funds focusing on “Class A” properties in core coastal markets has forced Decron to look at less traditional deals. In October 2010, Decron took control of a premier
363 unit apartment complex in West Los Angeles by purchasing the note from the property’s lender and subsequently foreclosing on the borrower and taking title approximately 90 days later.
With the successful acquisition of The Madison, Decron is gearing up to acquire a portfolio of
1,000 “busted condos” to operate as rentals and eventually sell when the market turns. Its longstanding reputation and relationship with national and local lenders, such as Citigroup, will enable it to obtain favorable financing to pursue core products without having to compete with institutional investors.
“REITs have been reluctant to purchase ‘busted condos’ due to the complexities that come with managing such residential communities,” said Nagel. “As a seasoned operator, Decron can leverage its experience and banking relationships to achieve high yield opportunities for its investors through similar types of deals.”
While Decron will continue to look to grow its multifamily portfolio, it has also become more aware of new attractive opportunities in the commercial sector. Substantially vacant Class A office and retail buildings in California are trading at steep discounts, and Decron believes it sits in a prime position to take advantage of the distressed prices.
Decron is the real estate investment and development arm of the Nagel Family Trust, an active owner and investor in California real estate for over 55 years. With assets in excess of $1.5 billion, the current portfolio includes retail centers, office buildings, multi-family apartment buildings, and marinas, with over 7,000,000 square feet of commercial and residential property in 55 different projects and communities.