TruAmerica has expanded its workforce housing portfolio with the acquisition of three properties in the Pacific Northwest. The company sees an extreme supply-demand imbalance in this segment of the market, which presents acquisition opportunities. “New construction [in the country] has been directed to a very small segment of society—85% of new construction is directed towards 15% of the [population] who can afford it,” said Noah E. Hochman, senior managing director of acquisitions and investor relations at TruAmerica.
The company joined forces with DVO Real Estate and RCG Longview to purchase The Haven at Charbonneau, a 126-unit community in Wilsonville, OR, and the 329-unit Sommerset property in Kent, WA, from FPA Multifamily. In a separate transaction, TruAmerica worked with Intercontinential Real Estate Corporation to purchase the 386-unit Firdale Village in the Seattle submarket of Edmonds from Eaton Vance. All told, the company paid about $123m for properties.
In line with its value-add strategy, TruAmerica plans on investing $13m on capital improvements, ranging from renovations of all unit interiors, exterior repairs and enhancements, as well as upgrades to common areas. “There is a need to provide quality product for this rent-by-necessity segment of renters, which is a majority of the tenant profile right now. Our business strategy is to take assets and renovate them and reposition them, but we are very sensitive to the price points so we are not trying to raise rents by $300 to $400. Depending on the location, we increase rents from $100 to $150 because we are updating interiors and providing new amenities for residents at the properties. By providing a better living environment, residents will develop a pride of ownership and don’t mind spending a little more…it’s not to raise rents for the sake of it. The tradeoff is providing a nice, safe living experience for residents.”
The Los Angeles-based firm, which formed in 2013, works in value-add multifamily space, and manages a portfolio of $3.6bn with more than 17,500 units in California, Washington, Oregon, Colorado, Arizona and Utah. “The reason why we focus on these markets is because they all have very strong fundamentals including employment and job growth,” said Hochman. “The returns and yields on Class B are higher than buying Class A, core, new construction, and there is also a lower risk profile to doing that because your rents are low and our business plans don’t require increasing rents by $400 or maintaining high rents to be successful. The combination of the higher yields and positive leverage enables half of our returns come from the cash flow from the property instead of relying on appreciation or high rent growth.”
The Haven in Wilsonville is 30 miles south of Portland, which has seen more than 60% growth in its GDP. There are also a number of office parks located in Wilsonville, said Hochman, pointing to the fact that the town has some of the highest per capita jobs in the Portland MSA. “It becomes an affordability issue, where people can’t afford to buy homes, but want to be in the nice submarkets that are transportation centric with close proximity to their jobs and the lifestyle of more expensive downtown locations,” he said. The transaction marks TruAmerica’s first entry into metro Portland. As for the other two properties in Seattle, the firm already has a presence with ownership of 1,788 units in King County.