SPECIAL FOCUS: AFT’s Top Deals of 2007

APARTMENT FINANCE TODAY • NOVEMBER/DECEMBER 2007

Bascom Pays Up in Arizona’s Biggest Deal

Multi-property portfolio sale closes in double time.

By Bendix Anderson

The Bethany Group, LLC, bought more apartments in one transaction than any multifamily investor in the history of Arizona.

This June, the Irvine, Calif.-based investor purchased 12 properties totaling 5,178 apartments, in a deal noteworthy for not only the size of the portfolio, but also for its investor appeal and the transaction’s speed of execution.

Bethany paid $427.5 million, or an average of $82,561 per unit, for the communities. “We believe in the long-term diversity and consistently improving dynamics of the growing Phoenix metropolitan area,” said Greg Garmon, CEO of Bethany.

The properties are all infill developments and are set in high-growth areas of Phoenix, such as the neighborhoods near Sky Harbor Airport and Phoenix’s medical center. “What all the assets had in common was excellent location,” said Cindy Cooke, senior vice president for Colliers International, the brokerage that arranged the sale.

Bascom Arizona Ventures, LLC, had expected that it would have to sell the properties a few at a time over many months. However, it found much stronger demand than it had anticipated. When it put the properties on the market this spring, the firm received several bids from potential buyers on the entire portfolio. The buyer and the seller also managed to miss most of the turmoil that hit the capital markets this summer, thanks to the transaction’s swift execution. The deal closed June 2, within 60 days of the offer’s acceptance and less than three months after the portfolio went up for sale. Lehman Brothers handled the financing.

Bascom had spent $44.5 million, or about $8,600 per unit, on repairs and upgrades to correct the deferred maintenance that plagued the properties. The fixes ranged from new paint and stucco to new roofs and electrical systems. Tenants now sign leases for $75 to $125 a month more than they did a year ago, a rent increase of more than 12 percent.

Still, the value of the renovations has yet to be fully realized through higher rents across the entire portfolio. “We decided in late 2006 that our business plan had run its full cycle and decided to sell the portfolio rather than continue to manage the properties to further improve NOIs,” said Jerry Finney, one of three founders of Bascom. “We wish The Bethany Group success in taking these assets to the next level.”

Bethany will take advantage of the renovations to raise occupancies and burn off concessions, spreading the higher rents throughout the apartments as leases renew. In June, the properties were only 88 percent occupied and offered concessions of up to one month of free rent to new tenants.

“There’s still a lot of value left in just stabilizing the asset,” said Cooke.

On top of the value achieved from the improvements Bascom made, Bethany plans to eventually push average rents another $120 to $140 higher over the next two years with a planned $50 million renovation of the apartment interiors.