BET Investments Sees the Time is Right to Buy Apartments
BET Investments Inc. Closed this week on two apartment properties and has now spent more than $80 million since September bolstering its multifamily holdings throughout the region.
The private company isn’t done, either. BET plans to spend between $100 million and $150 million buying apartment properties annually for the next three or four years. Its goal is to acquire up to 1,000 rental units a year.
“We want to buy a lot more and were focusing on Philadelphia” said Bruce E. Toll, who runs BET with Michael P. Markman, who is president of the company.
The two properties BET just bought were Newtown Place in Newtown, Bucks County, and Wynmere Chase in Horsham, Montgomery County. Newtown Place off Cambridge lane was constructed in 1987 and has 150 garden-style apartments. Wynmere Chase off Bridal Lane was constructed in 1987 and has 80 apartments. The Quaker Group of Voorhees, NJ., sold the properties for 425 million. CBRE Inc. arranged the transaction.
On a tear, BET bought in September the 247-unit Chesterfield Apartments at 1338 Veterans Highway in Levittown for about $25 million. The property was 96 percent occupied. In October, it dropped another $29.8 million to buy Curren Terrace in Norristown. Curren Terrace has 318 units at 1011 New Hope St. It is 97 percent occupied. BET intends to build additional units, a clubhouse and pool at Curren Terrace and Newtown Place. It bought those two complexes from Home Properties Inc.
In all, BET’s apartment portfolio totals 1,171 units.
Bruce Toll started Toll Brothers Inc. with his brother Robert and reduced his day-to-day duties at the homebuilding company in 1998 to focus on his own ventures. BET has bought office buildings, shopping centers and industrial properties and last year started adding apartments.
The company’s timing to load up on apartments has been buoyed by more multifamily properties hitting the market. While many multifamily owners tend to hold onto their properties, the increasingly hot apartment market has motivated more owners to sell. BET will look at B-minus properties but focus on what it deems as B-plus apartments, which it believes tend to have consistent demand through economic cycles. While BET is on the hunt to buy, it will also consider constructing a new apartment community through it would focus on building Class A Properties. Last year, it completed Dublin Terrace, a $50 million apartment community at 2034 S. Limekiln Pike in Dresher. It is an active adult community; it has 192 apartments in 12 buildings and 4,000-square-foot clubhouse. The barriers to constructing new apartment communities have begun to approve more multifamily developments.
The easier play and the one BET is looking to make is to acquire existing apartment complexes that need a little work invest in exterior and interior upgrades and hold the properties for the long term.(Bruce Toll continues to own Dreshertown apartments, a 114-unit complex in Horsham he constructed with his brother in 1973. He recalled needing to charge $279 a month at the time to break even. Rents now run $1,500 a month.)
It hasn’t been easy to make those buys. “We’ve been trying to buy apartments in Philadelphia for a while.” Markman said. “Now there is more of a selection.”
Several factors are working to drive interest in the apartment market, according to Jim Vesey, an investment broker with Jones Lang LaSalle. First and foremost, financing is available and from Fannie Mae and Freddie Mac.
“They are big lenders on the apartment side and the benefit to their financing is higher loan to value,” Vesey said.
Rather than underwrite a loan that equates to 75 percent of the value of a property, which is common, Fannie and Freddie are willing to finance 80 percent to 85 Percent of the value. The loans are also nonrecourse, which limits exposure. In addition, interest rates are low.
“When other lenders shut down, Freddie and Fannie are there and have provided tremendous terms,” Vesey said. The current climate is enticing
“You almost can’t not buy something.” Toll said. “someone is paying us to buy something because of low rates. It can’t stay this way forever.”
The lending environment has made the apartment market frothy, but Markman is confident in their strategy.
“There’s definitely potential for a bubble in apartments but our financing shields us from that and we’re not looking to sell,” he said. “Funds, which buy and sell within a certain period, such as five years, that’s what exposes us. We have fixed-rate debt and we’re in it for the long term”
While there’s a potential for a bubble, Vesey believes other trends are at play.
“The other major drivers are the demographics and what happened to the housing market.” He said. “The idea that you buy a house and it always goes up in value has proven not to be true.”