AREA to deploy up to $800m of equity in US in 2011

The New York-based firm primarily is targeting recapitalisation opportunities, particularly in the multifamily, hotel and retail sectors. When it comes to office, though, North America CEO Richard Mack admits AREA is more “reluctant”.

AREA Property Partners expects to deploy between $500 million and $800 million of equity in the US in 2011 as it increasingly targets recapitalisation deals.

After closing a raft of transactions in the final three months of 2010, the New York-based firm told PERE the next 12 months could be just as – if not more – active than the previous year. “A lot of the deals in our pipeline currently are recapitalisation opportunities and I would expect us to put out between $500 million and $800 million of equity this year,” said Richard Mack, North America chief executive officer.

The firm this week revealed it had closed a joint venture with developer Wood Partners to acquire nine multifamily properties in Texas, comprising 2,589 units. AREA declined to disclose financial details of the deal.

You are seeing huge bidding wars for many office assets to the point where demand for the property offsets the fundamentals.

Richard Mack, AREA Property Partners, North America
chief executive officer

The transaction, though, comes on top of spate of deals targeting the apartment sector, with Real Capital Analytics data showing AREA closing on more than $240 million worth of multifamily deals in the final quarter of 2010. The deals represented almost 3,000 apartment units across three states and were done in conjunction with joint venture partners as well as individually.

Mack said multifamily was one sector the firm was targeting, not least because of the improving fundamentals thanks to demographics, a lack of new supply and would-be homeowners continuing to turn to renting instead of buying.

The office sector was giving AREA more pause for thought, Mack said, admitting the firm was “very reluctant” to invest in properties in high growth and high barrier to entry markets because of the volume of capital focused on the sector. “The office sector could be interesting depending on the structure of the transaction and we like high growth and high barrier to entry markets, such as New York and Washington DC, but you are seeing huge bidding wars for many office assets to the point where demand for the property offsets the fundamentals.”

Recapitalisation opportunities, however, provided some of the best “risk-adjusted returns”. Last week, AREA helped refinance and recapitalise the Maryland apartment complex, Seven Springs Village, with Ross Development and Investment. The securitised debt secured against the 982-unit property matured in September 2010, but Ross modified and extended the loan term, acquiring the interests of a partner and partnering with AREA to pay down the existing debt through a Freddie Mac mortgage.