In an economy where employment opportunities are scarce and gas prices are climbing, a community located within three miles of 60,000 jobs couldn’t have a better selling point.
That was the mindset in February when Phoenix Realty Group (PRG) and MG Properties Group (MGPG) acquired Crystal View, a $53 million apartment community in Garden Grove, Calif., that already has reached 95 percent occupancy.
Down the road from three of California’s largest employers, including Disney, the 402-unit community is in the epicenter of Orange County. “There’s a convention center a mile north of the property, three hospitals, two major sports facilities all serviced by three major freeways and a passenger train stop,” says Alex Saunders, Managing Director for PRG. “With a population of over 175,000, Garden Grove is one of the densest areas in Orange County—you name it, it’s here.”
The acquisition was an 80/20 bond deal—20 percent of the units are allocated as affordable housing for residents who earn no more than 50 percent of the area median income—with a low floating interest rate.
Despite the ideal location, Saunders says there were only about a dozen parties interested in purchasing the property. “Large deals tend to have less competition due to the dearth of investors in that space with that level of capital available for investment in a single asset,” Saunders says. “Additionally, you add in the bonds and associated requirements and expertise needed for affordable housing and the list of potential buyers dwindles even further.”
PRG and MG Properties made the most of the situation and purchased a community in need of little capital improvements, thanks in large part to the over $10 million in capital spent by the community’s three previous owners over the past decade.
“We plan to improve the landscaping and renovate about 10 percent of the units, but Crystal View already has a class A amenity package including a pool, tennis courts, basketball courts, full gym and media room, so fortunately there is not a great deal of needs remaining to improve the asset,” Saunders says. “We believe it’s an opportune time to buy at the low end of the rent cycle with a seller—a large institutional owner—who needed to liquidate a fund.”
The acquisition of Crystal View is part of PRG and MG Properties’ overall value-add investment strategy: purchasing B- and C-class assets in an urban, middle-market center close to jobs and highlighting that proximity to prospective residents.
“Prior to the recent recession, apartment amenities tended to be a significant driver of residents’ demands, and there was a sense that renters were willing to commute based on those amenities,” Saunders says. “Today, due to the economy and energy costs—including gas that is $4.15 a gallon and rising—we are finding that the average renter’s tolerance for commutes has changed. We own approximately 4,000 units and I’d bet that more than 80 percent work within a 3- to 4-mile radius of their community. With Crystal View, we play up that you can almost ride your bike to work at one of the 60,000 jobs within a three-mile radius.”
—NAA’s Lauren Boston