With the $78 million acquisition of Hunting Point, a 530-unit apartment complex on Potomac River in Alexandria, VA, Lubert-Adler of Philadelphia, PA has amassed a multifamily portfolio valued at approximately $2 billion for its domestic institutional investors.
The company’s Fund VI, VI-A and VI-B co-investment pool, launched in January of 2010 with over $1 billion in equity, has now acquired, among several asset classes, some 70 multifamily properties totaling over 20,000 units, valued at over $2 billion. Most of the assets were acquired in the last 18 months.
“In 2010, we made a strategic decision based on the belief that multifamily rental apartments provide one of the best opportunities to create risk-adjusted superior returns, because a substantial portion of the overall return is in the form of current yield,” explained Dean Adler, CEO and Co-Founder, Lubert-Adler Partners, L.P. “We aimed for overall returns of 17-20 percent, with10-12 percent of that target coming from current yield.”
“In order to execute that strategy, we sought out one-off middle-market acquisitions through local entrepreneurs, focusing on transactions that are too large for local operators but smaller than those that would interest the very large funds,” Adler went on. “Our goal was to buy assets opportunistically, preferably from sellers who are not in the everyday business of improving real estate, and then work with our local partners to increase current yield by renovating and repositioning the assets. Now that we have achieved our initial goal, we plan to continue this value-add program into the future.”
The company’s acquisition of Hunting Point illustrates its strategy, Adler pointed out. In partnership with The Laramar Group, Lubert-Adler purchased this 530-unit complex just south of Old Town Alexandria for $78 million, or about $147,000 per unit, from the Virginia Department of Transportation (VDOT). VDOT acquired the property via eminent domain in 2002 to allow for construction of the new Woodrow Wilson Bridge, which required demolition of one of the three towers.
Despite its superior location, unit interiors and amenities have been untouched for years, and rents are 30-40 percent below market rate. “This was a flat tire that we can transform into a Class A apartment community,” remarked Adler. “There is a sentiment in the market that multifamily properties are overpriced and there are no longer opportunities to generate attractive profits. We have a contrary view: stabilized assets may be overpriced, but value-add assets are on the rise because of the overleveraged environment since 2008. We believe we have demonstrated this thesis through the portfolio we have assembled in today’s market conditions.”
Over the next three years, the new ownership plans to invest about $14 million in capital improvements including new lobbies, corridors, rooftop entertainment areas, building systems, mechanical repairs, façade improvements, and riverside pool amenities. Individual apartments will be renovated with new kitchens, baths, windows, flooring, and other upgrades.
Hunting Point enjoys a commanding view of the Potomac River and the new Wilson Bridge, which is easily accessible from the property. Just minutes away by car – and also reachable by scenic water taxi – is the new 300-acre National Harbor mixed-use complex on the Maryland side of the Potomac River.
Lubert-Adler was co-founded in 1997 by Ira Lubert and Dean Adler, who collectively have over 50 years of experience in underwriting, acquiring, repositioning, refinancing, and disposing real estate assets. Today, the Philadelphia-based firm has grown to include more than 30 investment professionals and has invested some $6.5 billion of equity into assets valued at over $16 billion. For more information, visit www.lubertadler.com.