AIV- Apartment Investment and Management Company

[thepupil]

the way you get a 30 year mortgage in multi-family is through HUD / Ginnie Mae, which is a time consuming process and one is not able to do at scale ( if you are aware of a REIT w/ all LT 30 yr ginnie mae or bank financing, i'm all ears, I think there actually is one but can't remember off the top of my head)

 

7-10 year financing is standard in multifamily (most typically 10 yr maturity w/ 30 year amortization (Fannie and Freddie are mostly this).

 

the blue chip apartment REITs have access to longer term through the unsecured bond market.

 

I'm not saying 30 yr amortizing paper doesn't exist in multifamily (it does, yours truly was once a ready and willing provider of it!), but to expect someone to be getting low cost 30 yr amortizing mortgages on all their properties is probably not realistic.

 

long term financing would also not be appropriate given the redevelopment heavy nature of the portfolio as yield maintainnce/defeasance and prepay penalties may cause issues with sales as some of these properties are not intended for a perpetual hold.

 

the interest rate tsunami is not guaranteed.

 

I'm not trying to pick on you learningmachine, just trying to deal in reality versus what's ideal / offer a different perspective.

 

 

 

 

[LearningMachine]

the way you get a 30 year mortgage in multi-family is through HUD / Ginnie Mae, which is a time consuming process and one is not able to do at scale ( if you are aware of a REIT w/ all LT 30 yr ginnie mae or bank financing, i'm all ears, I think there actually is one but can't remember off the top of my head)

 

7-10 year financing is standard in multifamily (most typically 10 yr maturity w/ 30 year amortization (Fannie and Freddie are mostly this).

 

the blue chip apartment REITs have access to longer term through the unsecured bond market.

 

I'm not saying 30 yr amortizing paper doesn't exist in multifamily (it does, yours truly was once a ready and willing provider of it!), but to expect someone to be getting low cost 30 yr amortizing mortgages on all their properties is probably not realistic.

 

long term financing would also not be appropriate given the redevelopment heavy nature of the portfolio as yield maintainnce/defeasance and prepay penalties may cause issues with sales as some of these properties are not intended for a perpetual hold.

 

the interest rate tsunami is not guaranteed.

 

I'm not trying to pick on you learningmachine, just trying to deal in reality versus what's ideal / offer a different perspective.

 

Pupil, I hear you that it is hard, but it is doable.

 

If the probability of interest rate tsunami was less than 1%, maybe I wouldn't worry too much.  However, I am thinking probability is above 90% that it will happen within our lifetimes, probably around 50% that it will happen in the next 10 years, maybe around 10% probability that it will happen in any given year.  So, we can't ignore it totally.

 

 

 

[thepupil]

Ya I don’t know man, feels like to me like you’re hanging out in a whorehouse and looking for a wife.

 

This very management team actually just created a company with stable assets and designed to over time take on long term low cost financing (AIRC), I’d suggest the other blue chippier ones too (EQR CPT ESS MAA etc)

[Gregmal]

Ya I don’t know man, feels like to me like you’re hanging out in a whorehouse and looking for a wife.

 

This very management team actually just created a company with stable assets and designed to over time take on long term low cost financing (AIRC), I’d suggest the other blue chippier ones too (EQR CPT ESS MAA etc)

 

Then the answer must to be try them all!

[LearningMachine]

Lol :-).

 

My thinking is not too far off from yours. If the price gets low enough, maybe it is worth some investment to get in and out, but not worth a big long-term position.

[CorpRaider]

Speaking of the shareholder base and "forced" selling:  Am I right that like 135 million (~156 million outstanding) have changed hands over the last two days?  Of course there are some people who are day trading it like thepupil...but that is one thing I was thinking about watching to try and get a feel for when the turnover of the shareholder base might be ending.

[lemsinge]

I am no real estate expert, but my two cents on this Parkmerced mezzanine note is that it smelt like a crappy deal excluding Covid. I found some details on the building from a Pari Passu CMBS by GS below, with Parkmerced on page 78. ~$1.8bn refinancing deal on a building with ~$60m in NOI makes this out to a 3.35% cap rate with a caveat that Maximus was planning to build an additional ~5000 units from the apartment buildings current 3165. Even if the redevelopment was/is successful and drives significant NOI improvements, who the heck wants to take a mezzanine note on something this levered and this tight a cap rate? Personally think this note is impaired and worth zero. Debt service coverage on the junior CMBS tranche is 1.02x per Fitch, and I am ballparking NOI to be around $48m based on no rent decline and 85% occupancy. I suspect this results in an unserviceable mezz note, or at least a portion of it being unserviceable

 

https://ireportscdn.dbrs.com/presale_reports/GSMS%202020-GC45_presale_report.pdf

 

Interested in hearing others thoughts. Have added this to my watch list and think it may be worth a bite if cheap enough.

[Gregmal]

Ive been earmarking what I can find on the Parkmerced property/loan for more thorough reading this weekend. It doesnt seem to be ideal but I also think you've got some time for things to work out. The property was sold in 2011 for $1.4B. You've got probably one of the best located 150 acre pieces of land in the state/country. What I read thats appealing on the 5k+ new units is they are exempt from rent control. The loan IIRC has a second 5 yr option, no? And an option for 30% ownership...which, I think is appealing if the market solidifies. I would think, as we've seen, lender issues that are covid related can be worked through. I dont think the current owners are just letting it go, and if and when shit hits the fan I think its likely enough time has passed that you may not be sitting in "distressed" property value territory. They were "troubled" in 2014 too.

 

https://www.sfgate.com/business/bottomline/article/Troubled-Parkmerced-development-gets-new-5920452.php

 

That said, this isnt a high conviction assessment. I am currently looking at these assets as if the loan doesnt get full value. But I see the odds of it being a 0 as low. For that area, a 3 something cap with the ability to almost triple the number of units and have rent control exemption is hardly "expensive". WFH may hurt office, and trickle out into "home"...but this is still a coveted location in an area people want to be. My understanding is that these units are not nosebleed expensive and kind of in the value territory as far as pricing is concerned. My experience here on the east coast has been that the higher end of the market is very volatile, but the entry/value territory much firmer in terms of holding price/demand. I guess we will see.

 

I'm also curious to hear other opinions. From $4-ish..I dont think we need the mezzanine loan to do great, but if we get full value this is a home run from here. Either way, I am beginning to look at this as a moderately well defined event driven investment.....for 2024!

[lemsinge]

Ive been earmarking what I can find on the Parkmerced property/loan for more thorough reading this weekend. It doesnt seem to be ideal but I also think you've got some time for things to work out. The property was sold in 2011 for $1.4B. You've got probably one of the best located 150 acre pieces of land in the state/country. What I read thats appealing on the 5k+ new units is they are exempt from rent control. The loan IIRC has a second 5 yr option, no? And an option for 30% ownership...which, I think is appealing if the market solidifies. I would think, as we've seen, lender issues that are covid related can be worked through. I dont think the current owners are just letting it go, and if and when shit hits the fan I think its likely enough time has passed that you may not be sitting in "distressed" property value territory. They were "troubled" in 2014 too.

 

https://www.sfgate.com/business/bottomline/article/Troubled-Parkmerced-development-gets-new-5920452.php

 

That said, this isnt a high conviction assessment. I am currently looking at these assets as if the loan doesnt get full value. But I see the odds of it being a 0 as low. For that area, a 3 something cap with the ability to almost triple the number of units and have rent control exemption is hardly "expensive". WFH may hurt office, and trickle out into "home"...but this is still a coveted location in an area people want to be. My understanding is that these units are not nosebleed expensive and kind of in the value territory as far as pricing is concerned. My experience here on the east coast has been that the higher end of the market is very volatile, but the entry/value territory much firmer in terms of holding price/demand. I guess we will see.

 

I'm also curious to hear other opinions. From $4-ish..I dont think we need the mezzanine loan to do great, but if we get full value this is a home run from here. Either way, I am beginning to look at this as a moderately well defined event driven investment.....for 2024!

 

I was not aware it had a 30% ownership option, thanks for mentioning. If you use the 2011 value of $1.4bn, that equity stake would be worth ~$420m + whatever development potential comes over the next ten years. Running some quick 'dreamy' numbers on a potential building with 7000 units at $500k/unit and this has a ton of juice in it. Though I shouldn't get to far ahead...

[thepupil]

https://www.sec.gov/Archives/edgar/data/1515166/000153949720000567/n2054_x2-teaser.htm

 

Page 23, CMBS description of Parkmerced (just try not to get distracted by the beauty of PGRE’s 1633 Broadway, which is featured before it).

 

Doesn’t look like it adds too much to lemsinge’s document.

 

I think there will be lots of drama and that AIV will have to potentially fight some people here to keep their stake in this property; wide range of outcomes. The upside scenario would be AIV ends up owning the equity and the property recovers (ie the mezz is the fulcrum), downside would be if shit really hits fan and a recap takes place below ahead/above the mezz. I’m not really up on my CMBS / special servicing / how fights go down stuff. The best case study would be stuy town (which has lots of parallels to this: huge loan just before crisis on rent regulated MetLife postwar apartment complex in a major coastal city).

 

Fun complication here is that successful development in SF (business unfriendly city that’s on the wrong side of every headline) is what needs to occur to make the mezz note work.

 

It’s tough for me to tell if the sponsor (Maximus) has the ability (or willingness) to insert more equity in the project. Based on a cursory look at the website, they seem like bull market types.

 

Some more info

 

https://www.google.com/amp/s/www.globest.com/2019/12/11/recapitalization-paves-way-for-parkmerceds-first-phase/%3famp=1

[Gregmal]

Yea I noticed the PGRE property. I also was surprised to find Crystal Springs Resort. Awesome place I go to all the time, and on more than one occasion Ive come quite close to buying some properties over there. I always heard that the management fucks the unit owners, basically timeshares with more liquidity. These documents definitely added detail to support that notion.

[realassetsvalue]

Attached is the KBRA pre-sale report on ParkMerced, best info source I've seen on the asset to-date. Should allow for a bottom-up underwrite of the asset (which I have not yet done).

 

They requested forbearance in April (I think) but subsequently withdrew the request, I believe they are current on the senior whole loan but that trades at a discount to par, which would imply the mezz is underwater... My feel is that the mezz is probably worth something in 5 years, maybe not par, but I don't want to count on value from the note today to justify valuation.

CMBS__MRCD_2019-PARK_Pre-Sale_Report.pdf

[thepupil]

Much appreciated, I guess I’ll have to get more specific than an arbitrary $0mm, $100mm, $300mm bear/base/bull now

[Gregmal]

https://seekingalpha.com/news/3646407-equity-residential-sells-san-diego-apartment-property-pays-down-750m-of-notes

 

4.1 clip is pretty bullish, I would think.

[Gregmal]

Just a reminder of what we may be dealing with....all them Form 4s. 34,000 shares a piece annually it seems to oversee a $600M market cap company!

[CorpRaider]

Oof level 34K.

[realassetsvalue]

Also two of the three existing Directors, Bob Miller (Chairman) and Michael Stein sold all their shares over the last couple days around $4.70 per share. Not exactly a vote of confidence!

[thepupil]

i purposefully owned in non taxed accounts to avoid complications / friction, but just for some perspective here they just announced the dividend tax treatment and for 2020 and its

 

6.7% taxable ordinary

1.3% qualified divvies

40.9% Capital Gains

18% Unrecaptured Section 1250

32% Return of capital

 

the big spin off divvy was 40% return of capital and 35% capital gains, so the big taxable spin-off definitely had tax friction but maybe not quite as big as people feared.

[rosemontseneca]

I've been thinking more and more about this one. A few thoughts below:

 

1) I presume they are going to make some sort of IR effort at some point?  At minimum, an investor presentation would help a lot here in laying out the value proposition and maybe help collapse some of the NAV discount?  I think this one falls in the "too hard" pile for a lot of people as it stands today.

 

2) I think Parkmerced is the key to having the stock work near-term.  If the loan continues to perform, this is clearly too cheap at $5.  If it doesn't, I think the stock is still cheap but could be dead money for a while as realizing the value of the other pieces could take several years.  I noticed they included this statement in the info statement: "We expect that the Parkmerced Loan will provide us an attractive return with limited expected downside risk."  If it was already going off the rails as of 11/30 (print date on the statement), would the lawyers let them get away with that statement?  Based on that and the statement that they will rely on the interest payments as a source of liquidity, I presume they are current on cash interest?

 

3) Not sure if this was posted elsewhere, but looks like they are participating in a third-party development in D.C. (https://www.bamsec.com/filing/119312520326727?cik=922864).  Hard to know rationale/attractiveness without more info, but are they going to be doing a bunch of random development deals going forward apart from the identified pipeline? If so, the stocks becomes less interesting to me.  Again, an IR strategy would help. 

[realassetsvalue]

Good points rosemontseneca.

 

This development deal looks sort of interesting based on the little bit of intel easily google-able - Donohue Companies owned the now obsolete office buildings, which were leased to Fannie Mae worked up a redevelopment plan. It looks like they could never get the capital together to redevelop the properties and almost defaulted on their loan over the properties in 2019. AimCo coming in as the balance sheet partner that allowed them to get the construction loan from OZK?

 

Agree many open questions on this deal (how much equity required? What interest in the JV? What is their role?) - best case is opportunistic / nimble acquisition of high-quality development site, worst case is passive participation, maybe with some guys the AimCo management know well, that will just distract from the existing pipeline...

 

Anyone who knows the DC MF market have a view on the location?

 

https://www.bizjournals.com/washington/news/2019/07/24/donohoe-averts-loss-of-former-fannie-mae-site.html

 

https://www.donohoe.com/newsroom/development/landmark-upton-place-development-coming-to-northwest-washington-dc/

[thepupil]

I would call it a good, albeit not spectacular location. It’s half a mile / 12 minute walk from tenleytown (American university) metro so it’s got good metro access. Its a very wealthy/ nice area (across from Sidwell Friends), but not exactly hip. Boring mostly white people of decent incomes will live there. The same 10 restaurants in every single similar development will provide reliable commercial rent. It should be an okay development (from a very high level, haven’t looked in depth)

[TrashIsCash]

Regarding Park Merced, I spoke to a leasing agent there.  On their website, they are offering some very generous incentives to attract new tenants, such as $5 parking and $5 security deposit.  That is somewhat disconcerting.  However, they have only dropped rents on certain units and not across the board.  She also said the past few months have seen slow and steady gains.  Residents from other parts of the Bay Area have moved to Park Merced because the layout is lower-density and the unit square footage is larger for WFH. 

 

https://www.parkmerced.com/lease-online?mktLayoutGroupId=975bf960-11e6-486c-9996-9b21c98ea987

 

Has anyone called the Chicago properties?  I am curious what occupancy is like. 

 

[thepupil]

You’re way deeper than I am, haven’t prioritized incremental work on this and am just waiting to see how things play out.

[thepupil]

strong start as a standalone company  ;D

 

The Annual Report on Form 10-K for the year ended December 31, 2020 will be the Company’s first annual report subsequent to the Separation.  Due to the timing of the Separation, the complexity associated with preparing the Company’s financial statements predominately on a carve out basis in accordance with US GAAP and the complexity of accounting for certain assets and liabilities obtained in the Separation, management of the Company has determined that it requires additional time to complete its review of the Company’s financial statements and other disclosures in the Form 10-K.  The Company is therefore unable to file its 2020 Annual Report on Form 10-K within the prescribed time without unreasonable effort or expense.  The Company intends to file its 2020 Form 10-K no later than the fifteenth calendar day after its prescribed due date. 

 

[Gregmal]

Didnt see anything extraordinary in the release today...which at this valuation, nothing catastrophic = great news. Chart looking mighty bullish, definitely some catch up to do here with respect to the recent rally. Bought some more this morning. All around a pretty great recovery play here IMO.