A luxury fixer-upper

BUYER: Pollack Shores Real Estate Group and a partner (PS Lexington Park Owner LLC), Atlanta
SELLER: Lexington Park at Westchase LLC
PROPERTY: 12201 Lexington Park Drive, Tampa
PRICE: $64.5 million ($161,250 per unit)
PREVIOUS PRICE: $42,500,000, March 2010

PLANS, DESCRIPTION:
When Pollack Shores Real Estate Group bought the 400-unit Lexington Park for $64.5 million, it was less for what it is now and more for what the company can create. Even with $161,250 per unit already invested in the project, Pollack Shores and its joint venture partner, a client advised by Heitman LLC, are approaching the 14-year-old Westchase apartment as property to improve.

The community's rents average $1,455 per unit per month, according to the CoStar Group. Its buyers hope to make it more attractive to affluent renters and, ultimately, more profitable.
Pollack Shores plans to upgrade the unit interiors with wood flooring, new cabinetry, granite and quartz countertops, stainless steel appliances, lighting and plumbing fixtures. It will also make changes to the 12,500-square-foot clubhouse, fitness center and pool areas.

“Our plan is to position it to complete with new luxury product,” says Graham Carpenter, managing director of acquisitions for Pollack Shores.

The new ownership expects to complete improvements to the units a few at a time to gauge how the market reacts.

They say they were attracted by the apartment's infill location, that 50% of its units are townhomes and its general construction.

“We look for well-built, not obsolete properties, that haven't been significantly improved since they were originally built,” says Carpenter. “Properties that will also be helped by our hands-on management approach.”

Darron Kattan, a partner with Franklin Street Real Estate Services, who was not involved in the sale, says the biggest takeaway from the sale is the availability of funding for multifamily properties.

“What strikes me is that [the purchase price is] probably not far off from replacement cost,” he says. “But rent levels there are very strong and this is also a very special property. What it really shows is that the availability of both debit and equity continue to be strong, which is pushing values. More money is chasing the same amount of deals.”

As prices for multifamily properties have increased, returns for their buyers have fallen. Kattan says that class A properties, such as Lexington Park, are now being sold for roughly a 5% annual return on purchase price (capitalization rate).

The Lexington Park purchase brings Pollack Shores' total apartment portfolio in Florida up to more than 4,400 units. The company, which has considerable holdings in the Tampa Bay area, is also in the midst of developing two new apartments in the region: Gateway North in Largo and the second phase of NoHo Flats in Tampa. In its joint venture, the partnership owns two other properties, including one in Delray Beach.

Matrix Residential, the multifamily residential management division of Pollack Shores, will manage the property.

Pat Jones of Walker & Dunlap Investment Sales represented the seller. Mark Sixour and Elliott Throne with Holliday Fenoglio Fowler arranged financing for Pollack Shores.