Tuesday, September 23, 2008

Long-Standing REIT Ties Key to $2B Equity Raise


Behringer Harvard Multifamily REIT I Inc. is relying on its underpinnings from years of relationship-building to fuel a hunt for $2 billion of equity in a capital marketplace that's crippling more players every day. The door has just now opened for investment, with the REIT marking its fifth day from the IPO launch.

"We still have a credit crunch, effectively due to subprime, but I believe for the long term that people are still investing in real estate and multifamily has an attractive profile," stresses Jason Mattox, executive vice president of the Dallas-based Behringer Harvard. He tells GlobeSt.com that the long list of well-known developers will set the hook for investor interest, citing an IPO launch with 10 projects as signing incentives and only one that has reached completion. "It's quite a list and we have relationships with many more than that," he says.

The fund drive is a standard two-year offering, with liquidation scheduled for four to six years after it closes. The REIT's team is sizing up a plethora of investments, but its SEC filing reflects an affinity for transit-oriented and live-work developments in the 50 largest metropolitan areas in the US.

"One thing that's very clear, with the way commuting is poised to change, a focus on locations in high-traffic corridors with mass transit will build that lifestyle," Mattox says. "There is a reason to believe that's the focus of where this is going." The spotlight also is pointed at high barrier-to-entry markets in Sunbelt states due to favorable demographical shifts that are in play, thanks to relocating Baby Boomers.

Behringer Harvard, with a black book of international investor names, is confining the multifamily play to US terrain--at least, for now. In its SEC filing, the REIT says it won't buy, develop or invest abroad until all non-independent directors and one independent director have three years of experience in acquisition and management of international investments. The non-independent directors will reach that threshold in March 2009. In the prospectus, the REIT also reported it is considering candidates with international investment experience to serve as an additional independent director. The multifamily REIT is led by Mark T. Alfieri, who joined the investment group in 2006 to lay its foundation and build the team.

In addition to ground-up, the REIT will provide debt and equity investments for multifamily developers, including student housing and age-restricted sectors. In today's world, that's a street-savvy capitalistic move since construction loans typically only provide 65% to 80% of the total costs--and that was before Wall Street's tumble in the past week. The REIT doesn't plan to put more than 30% of its portfolio's value into financing vehicles.

The REIT's cash comes at a higher interest rate to capitalize on the risk. In the case of the 149-unit Lovers Lane Townhomes in Dallas, the REIT already funded a $2.18-million mezz loan at a 10% interest rate. The loan matures in April 2011, just one year before the maturity of a $7.48-million senior mezz piece at a 9.5% interest rate provided by Behringer Harvard's $200-million joint venture with Dutch pension fund, Stichting Pensioenfonds Zorg en Welzijn. PGGM has until Nov. 9, 2011, to add its third $100-million contribution.

Whether paper or bricks-and-mortar, the REIT's plan targets single-asset investments from $10 million to $200 million and portfolios of all sizes. The REIT's financing strategy is particularly timely since construction funds have practically dried up in the conventional marketplace.

Just yesterday, Richard F. Moody, chief economist of Austin-based Mission Residential LLC, pointed out in a report that multifamily permits had slowed in August after a jump in July. "We're hesitant to read too much into the decline," he says," but it is possible that tight credit market conditions have meant that in some cases developers have been unable to secure financing for projects already permitted." He says it's "too soon to draw definitive conclusions, but the gap between multifamily permits and starts will bear watching over in the coming months."

The REIT has been seeded with 10 developments by Fairfield Residential of San Diego, Trammell Crow Residential of Atlanta, Simmons Vedder & Co. of Houston, Altman Cos. of Boca Raton, FL and Greystar Development & Construction of Dallas. The only finished project, to date, is the 210-unit Reserve at Johns Creek in Fulton County, GA. In addition to Lovers Lane Townhomes, the portfolio includes the 330-unit Eclipse in Houston; 414-unit Fairfield at Bailey's Crossing and 234-unit Tower 55 Hundred in Arlington County, VA; 430-unit Alexan Rose and 168-unit Alexan Russell Lofts in Clark County, NV; 279-unit Satori in Broward County, FL; 325-unit Fairfield at Cameron House in Silver Spring, MD; and 400 Alexan Prospect in Denver.