While many apartment buyers are currently chasing the glut of brand-new properties from merchant developers that are hitting the market, Lion Real Estate Group prefers to play in a different space, specializing in buying workforce housing and class B apartments.
“The way that our operation is set up is that we're really good and extremely efficient at renovating units to premium-level finishes where the market can sustain it,” Ben Kriegsman, director of acquisitions at Lion, told Multifamily Dive. “That's our bread and butter, and we typically stick to that segment of the market.”
It’s not a bad time to buy value-added class B apartments. While finding debt can be challenging, Fannie Mae and Freddie Mac provide ample financing for workforce housing.
“We've been very fortunate to be going through the cycle with a majority of fixed-rate financing on our books,” Kriegsman said. “That has allowed us to raise money and look for creative opportunities.
More opportunities
Recently, the Dallas-based real estate investment and asset management firm implemented its strategy when it moved to Charlotte, North Carolina.
Some owners of class B apartments aren’t in favorable positions right now. Saddled with floating-rate debt and near-term maturities, they are looking for an exit. This presents an opportunity for Lion.
“We're seeing a lot of people obviously struggle in this interest rate environment, and it's presented opportunities,” Kriegsman said. “It's gotten harder for people to pursue cash-out refinancing on assets that maybe they didn't anticipate holding for very long. We're seeing a lot of these deals pop up, which definitely presented an opportunity.”
As Lion looks to acquire more workforce housing for its portfolio, which includes apartments in California, Texas, Tennessee and Georgia, migration and job growth made the Carolinas a good target. “We love North Carolina,” Kriegsman said. “We're looking all over the Carolinas — Charlotte, Raleigh, Durham and South Carolina as well.”
The firm identified The Apartments at Radbourne Lake, a 225-unit property in the northern part of Charlotte, as an off-market target. Lion liked the property’s large floor plans, garages, landscaping and location.
“It has a wonderful site plan, and it includes a lake and an outdoor sports amenity area,” Kriegsman said. “The gym, clubhouse and pool all overlook the lake, which gives it a pleasant and scenic atmosphere.”
A discounted price
The Apartments at Radbourne Lake, a class B property built in 1990, had been well-maintained and managed, and the owner was facing debt maturity, according to Kriegsman. The seller was not listed in the press release, but property records show the asset had been owned by Des Moines, Iowa-based BH Equities.
“They had owned it for quite a while, but the [cost] basis was attractive to us relative to the recent trades in the sub-market,” Kriegsman said. “We were able to achieve a meaningful discount to those trades.”
Lion purchased the property in May. The sales price for the property was withheld, and it wasn’t listed in Mecklenburg County property records. In 2023, the asset was assessed at $44.6 million.
Lion plans to upgrade the property's interiors, including quartz countertops, energy-efficient LED lighting and stainless steel appliances. It will also paint the exterior, update the clubhouse and make other amenity upgrades.
“When we bought it, there was little deferred maintenance, which meant we could begin our value-added program on an accelerated timeline,” Kriegsman said. “We've already started the process of renovating units and enhancing the aesthetics and curb appeal of the property.”
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