Rent affordability issues and the need for infrastructure improvements reportedly have soured the interest of some investors that had considered acquiring the Gardencrest Apartments in Waltham.
Another attempt to harvest the Gardencrest Apartments in Waltham has apparently withered on the vine.
According to industry sources, Home Properties of America has ended negotiations to acquire the suburban residential complex from the DeVincent family, original developers of the aging but well-regarded property. A New York-based real estate investment trust, Home Properties is just the latest investment group to take a charge at buying the 696-unit asset without success.
“They are gone,” one source said last week of Home Properties. “And no one else is in there.”
The DeVincents have been peddling the multifamily development since last year, retaining Meredith & Grew broker David L. Pergola Sr. to handle the transaction. Pergola declined to discuss details of the situation, while Home Properties Director of Aquisitions John E. Smith did not return phone calls last week from Banker & Tradesman.
In an interview with B&T last month, Smith vehemently denied the REIT had any interest in the complex, but sources insisted the company was firmly committed to buying the property before balking in the latter stages of the sale. A member of a Gardencrest tenants group said Home Properties had even recently pledged to work with residents to address concerns involving the transfer, but a source said Home Properties told the representative last week that the REIT was retreating altogether from the deal.
Some observers have speculated that Home Properties lost interest due to the asking price. Given the age of the complex and the lack of infrastructure improvements made to the garden-style units in recent years, Gardencrest would require an extensive overhaul by any ownership team, according to multifamily specialists familiar with the property. “The price was just too heavy for them,” one source familiar with the discussions said last week of Home Properties, maintaining that the sellers have been seeking at or near $100 million. One multifamily expert estimates that the price should be closer to $90 million than $100 million, describing Gardencrest as a solid investment opportunity in the long term, but one that would mandate an extensive capital infusion to meet modern multifamily standards.
The source could not say whether Home Properties attempted to negotiate the price down before departing from discussions. So-called retrading has become a constant factor in recent months in commercial real estate sales, with eroding rents and the tenuous economy causing buyers to be particularly wary of overpaying for a deal. As a result, transactions have had a greater propensity to fall apart of late than had been the case for several years.
Another potential stumbling block may be the public relations challenge of raising rents at Gardencrest, a scenario most agree would be required should the property fetch anywhere close to the asking price. City officials and affordable housing advocates have been raising that specter since the complex was placed on the market, with particular concern to a block of low-income and elderly residents who reside at Gardencrest.
Noting that Gardencrest encompasses 6 percent of Waltham’s apartment stock, Mayor David Gately recently wrote an open letter to the real estate community challenging it to work cooperatively to ensure the development retains its affordability. The letter was published in Banker & Tradesman. In addition, the Waltham Alliance to Create Affordable Housing, or WATCH, a local community development corporation, has even submitted a bid to buy Gardencrest and preserve a high percentage of the units at affordable rates.
‘Difficult’ Deal
One source said Home Properties officials cited the tenant dilemma as a partial reason for pulling out of the Gardencrest deal, while a real estate broker who has read the letter from Gately concurred that it could dampen investor enthusiasm for the asset. The broker also chastised Gately for penning the tome.
“I think its a very bad [precedent] for the city to get involved in private business affairs,” said the broker. “Those rents have been so far below market for so long, it’s ridiculous . . . [The letter] is going to make it very difficult to put a deal together.”
Gately did not return phone calls by press deadline, but WATCH spokesman John Pollock said his group certainly hopes the Mayor’s efforts and other forms of public pressure will have an impact on the ownership team.
“For anyone whose mission is to increase the bottom line, the Mayor’s letter is definitely going a problem,” said Pollock, maintaining it will send a message that any rental increases will be carefully scrutinized. The city took a similar stance in 1998 when SSR Realty Advisors acquired the Northgate apartments and instituted significant rent hikes. SSR was chastised publicly and at shareholders meetings for its aggressive approach, creating a wealth of negative publicity for the company, which is a subsidiary of MetLife. Northgate reportedly was cited by the Home Properties official as one reason the REIT is sensitive to Gardencrest’s tenant situation.
In the interim, WATCH is hopeful that the DeVincents will see fit to consider its $70 million offer, one that would be sweetened by charitable tax deductions that could be culled by the owners selling at a discount to the nonprofit entity. With that taken into consideration, the DeVincents reportedly could reap as much as $82 million from the deal. Pollak agreed that it would still be well below the apparent $90 million minimum, adding that it is unclear whether the WATCH bid is being entertained at all by the DeVincents.
Given the silence from the sellers, it is difficult to say whether any private buyers are being pursued, or whether the owners might opt to pull back on a sale. At least one other investment team has previously expressed interest in Gardencrest, with Lincoln Properties Corp. official John Noone saying as recently as one month ago that his company would take a run at the complex should it come back on the market. Noone was unavailable last week to discuss the current status of Lincoln’s interest.
Other sources said the DeVincents have pulled back on their efforts to sell Gardencrest. While he would not discuss the matter in detail, Pergola indicated an all-out marketing effort may have been curtailed somewhat, stating that, “it’s not being shopped all over the place.” At the same time, Pergola indicated there may still be investors chasing the property.
“We have discussions with some parties, but at the moment they have not made a judgment on what they are going to do,” he said. “When there is something concrete to announce, we will be happy to discuss it.”
