JOINT VENTURES ARE BUSTING OUT all over multifamily land.
With debt markets still tight, savvy multifamily executives are
teaming up to form wide-varying ventures aimed at improving access
to capital— and in many cases to distress-driven
Whether the underlying motivation is opportunity or necessity,
it's today's crazy capital
conditions that are spawning many “strange
bedfellow” alliances unlikely to be replicated in more
what's driving many of these ventures
we're now seeing,” observes veteran
apartment investment executive Harvey Green. “The
pendulum has swung too far” into conservative lending
territory after those bubble-building years, laments the president
of Encino, Calif.-based investment brokerage firm Marcus &
As Green and others point out, parties are pairing via numerous
multi-housing-centric strategies: acquiring distressed properties
and loan portfolios; tapping public equity markets; resolving
busted condo ventures; and replacing hard-to-refidebt with hard
Here are three such partnerships that are changing the way
multifamily investors are doing business today.
1. SYNERGIZING FOR DISTRESS
A common trait characterizing many of the noteworthy new
alliances: synergistic combinations of partners'
core competencies and capital capabilities.
Take integrated investment and services company Kennedy-Wilson
Holdings (KW), which recently announced a strategic alliance with
planning and development specialist Urban Partners (along with a
related entity headed by Urban principal Paul Keller). Their goal?
To leverage their collective equity into distress plays along the
“Our thinking is that one plus one can equal
three,” stresses Bob Hart, chief executive of Beverly
Hills, Calif.-based Kennedy-Wilson's Multifamily
The Los Angeles-based Urban Partners team, headed by Keller and
co-principal Matt Burton, has deep roots in large development
projects and hands-on construction management. And the KW side,
with Hart and colleague Stuart Cramer overseeing the new
relationship, has extensive experience in opportunistic investments
such as recapitalizing stalled developments, as well as in
marketing multi-housing properties and units.
The combined capabilities should give the group a leg up as the
JV pursues multiple opportunities, with an investment target of
$250 million for the first year, according to Hart.
The synergy likewise extends to the financial
realm—another key competitive advantage in the
stingy lending environment. Each partner has access to equity
sources expected to contribute to the mostly distressed residential
ventures the partners plan to pursue jointly, Hart adds.
Illustrating parallel multi-housing joint venturing trends, KW
is likewise participating in other partnerships pursuing
distressed-debt portfolios and failed condo projects. [See
2. ”˜RETAIL' EQUITY
Another synergy-heavy venture unlikely to be forged during
normal capital markets conditions: co-sponsorship of a new
non-listed apartment REIT by investment manager KBS Capital
Advisors and private multifamily developer Legacy Partners
The partnership teams a handful of well-known real estate
figures: Chuck Schreiber and Peter Bren of Newport Beach,
Calif.-based KBS; and Foster City, Calif.-based Legacy
Residential's Preston Butcher, Dean Henry, and
While debt markets continued to reel, sponsors of non-listed
REITs were able to raise some $5.5 billion in equity from mostly
“retail” (individual) securities
investors last year, according to REIT research firm Green Street
Advisors (also based in Newport Beach).
And in what appears to be a highly unusual teaming of REIT
sponsor and operating partner, KBS (in raising its fourth such
vehicle) brought in apartment specialist Legacy Residential as
co-sponsor. Legacy's reputation will presumably
help attract investors to a program focused specifically on the
KBS Legacy Partners Apartment REIT is aiming for a $2 billion
capital raise. Proceeds are to target properties in lease-up,
development, redevelopment, and repositioning stages, according to
its prospectus. (Sponsors declined to discuss the venture during
the share offering “quiet
With attractively priced and structured debt still elusive,
co-sponsoring a non-listed REIT “is probably a
good way for Legacy to source capital” as its
dealmakers identify solid investment opportunities amid plentiful
market distress, says Michael Knott, a senior analyst with Green
This venture likewise oozes with synergy potential. Legacy
brings a wealth of multifamily expertise and success, while KBS now
has considerable experience with private REIT compliance, financial
reporting, marketing, and investor relations.
“Thus, a partnership was born,”
observes Knott, who couldn't think of any
comparable co-sponsorship arrangement.
Knott also stresses that publicly-traded REITs offer superior
long-term total returns compared to non-listed trusts.
3. FROM CONDOS TO TIMESHARES
Amid frighteningly large inventories of unsold new condominium
units in destination resorts—along with the
challenging financing environment—a just-closed
venture teaming a struggling condo developer and a timeshare giant
may be setting the pace for other such alliances.
Prominent local resort specialist Casey Shroff had managed to
sell only 45 of the 232 beachfront condos he developed at the
Towers on the Grove high-rise complex in North Myrtle Beach, S.C.
Unfortunately, the remaining 187 units—one- to
threebedroom condos with asking prices ranging from about $150,000
to $670,000— were not selling, so Shroff cut a
deal with major timeshare operator Wyndham Vacation Ownership
Simply buying the unsold inventory outright from
Shroff's group was too challenging in
today's financing climate, so CEO Franz Hanning
and other higherups at Orlando, Fla.-based WVO opted instead for a
arrangement. WVO, which already manages several Myrtle Beach area
timeshare properties, dubs it the Wyndham Asset Affiliation Model.
(WVO has identified some 5,000 condos in North America that
potentially fit its Wyndham Asset Affiliation Model, according to a
recent company conference call.)
WVO will operate the vacant units as vacation rentals while
endeavoring to sell timeshare interests in most of them on behalf
of Shroff. WVO has also agreed to purchase 50 of the unsold condos
over three years, with the goal of subsequently selling them into
Over the past couple years, Wyndham and other large
shared-ownership outfits had grand plans to snap up unsold
inventories of distressed condo developments at bargain-rate
prices, notes veteran resort development consultant Dick Ragatz at
Ragatz Associates in Eugene, Ore.
However, those expectations haven't come to
fruition since lenders have been quite tight when it comes to
financing planned condo-to-timeshare conversions. And consumers
seeking financing for interval purchases have faced more onerous
terms as well, Ragatz explains.
But with thousands of viable conversion candidates still unsold,
Ragatz envisions the fee-for-service model becoming an increasingly
popular strategy. It helps strapped developers (or foreclosing
lenders as the case may be) keep skin in the game while selling off
inventory in a less-than-receptive condo market.
And it allows growth-minded timeshare operators to expand their
portfolios while construction financing is scarce, and also earn
fee income—just without the big capital
commitments they'd need to buy all the vacant
units in bulk. “You've got all
this idled expertise at these companies, and they want to keep
growing,” Ragatz relates.
“It's not something
we'd see under normal
BRAD BERTON is a Portland, Ore.-based freelance writer
specializing in commercial real estate.