Gaia Real Estate, Starwood Capital Acquire 9500 Unit Multi-Family ...

By Barbra Murray, Contributing Editor

It?s not every day that a company can get its hands on 9,500 apartment units in one fell swoop, but Gaia Real Estate and an affiliate of Starwood Capital Group have done just that. Through the $22.5 million recapitalization of PJ Finance Co., Gaia and Starwood Capital can now claim ownership of a portfolio of 32 multifamily properties located primarily in major cities in the Sunbelt region.

The deal did not just fall into the new owners? hands. The group of assets was essentially made available for bidding as part of PJ?s $500 million debt restructuring following the company?s Chapter 11 bankruptcy protection filing in March 2011. According to DLA Piper, which represented PJ in the restructuring, Gaia and Starwood Capital came out on top ?following a highly competitive auction process.?

And this isn?t PJ?s first recapitalization effort. The company had recapitalized the portfolio with more than $540 million of securitized debt in 2006, just five years after having acquired the assets. PJ ultimately fell victim to lackluster occupancy levels ? as low as 72 percent at times ? limited cash flow and the credit crunch. The company was compelled to take more than 1,700 units offline. However, as it emerges from bankruptcy with two new partners, it?s a new day for PJ and its portfolio.

The majority of the properties, approximately 45 percent, can be found in Dallas, and another 19 percent of the group is located in Phoenix. Sixteen percent of the portfolio is equally distributed between Atlanta and Houston. Fort Lauderdale, Fla., and Corpus Christi, Tex., are home to a respective 7 and 6 percent of the assets. A five percent chunk of the group is in Nashville, and the remaining 3 percent segment is in Orlando. Now, all 32 apartment communities have reemerged refreshed and renewed. PJ was able to re-invest $14 million into the properties while in Chapter 11, and the company has since brought back online approximately 1,000 of the 1,700 units it had taken out of the rotation during the darker days. Currently, the portfolio boasts an occupancy level of approximately 90 percent.

And there?s more to come. Gaia and Starwood Capital?s investment will help lay the groundwork for greater stabilization through renovations and maintenance. Additionally, the new partners plan to shell out $45 million on a capital improvement program that will transpire over the next eight years.

?We are excited to partner with Gaia to unlock all the substantial upside potential in these attractive assets,? Chris Graham, Managing Director of Starwood Capital, said. ?We believe the structure of this investment is quite unique, and allows us to maximize the value of the portfolio with very little downside risk.?

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