Bellevue investor Xu turns modest apartments to gold - Puget Sound Business Journal (Seattle):

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An affiliate of Xu’s had purchased the 382-unit property hardly 14 monthzs earlier for lessthan $33.5 million. Then Longwell implemented Xu’s value-added strategy: making key capital improvements and implementinv more attentiveproperty management. In Madison at Fairwood’s case, the upgradesa included features sure to attractresidents — carportsx and in-unit washers and dryers. And once the improvementxs and more intensive leasingh efforts boosted rental ratesand occupancy, Xu cut a deal with an investotr motivated to outbid other suitors. The buyer was an affiliate of Calif.-based Passco Cos.
, a sponsorr of so-called “tenant-in-common” real estate investment programs through whic multiple investors purchase stakes in a A Passco-affiliated group also owned the adjacenf 260-unit Mission Ridge Apartment Homes, Xu said, and the prospect of controllinv nearly 650 apartments in one location providee quite the incentive to win the bidding for Madison. Other than shee r size of the property andprices tag, the Madison story was vintagse Xu. The profitable upgradde and disposition reflect an unwavering emphasis on what the affablwe Xu characterized asbasic “work force” housing stock. Longwelol Co.
’s primary strategy entails acquiring modest-ren t Class C or B-minus apartment properties, upgradingb them to Class B or B-plus statux through improvement programs andexpert management, then selling at what has typically been a heftg return on investment. Longwell’s primary lender, GE Real went so far last year as to issued a press release quoting director Angela Azizian specifying that Long well has solda half-dozen propertiexs “at an average saled price 34 percent abovd their purchase price.
” In buildinh the portfolio to aboutt 2,200 apartment units sinc e founding Longwell in the early Xu and his wife, Nanling Chen, have in many cases held propertiesa for three years or more. Hence, not only was Madiso n an exceptionally large property for it was also a relativelyshort — but quitse profitable — hold period. All the more impressivde is that Xu boughrt Madison when competition for availablre local multifamily properties was and then sold it at a stront price even as real estate capital markets were becominvg increasingly skittish amid theeconomic malaise.
well’s focusw on working-class housing insulates its portfolio from recessions to somedegree — at least relative to luxury-grade apartments. Indeed, whilw the most expensive apartments can be tough to leaser whenemployment falls, work force housing remaina in strong demand throughout the economixc cycle, observed prolific apartment broker Kenny Dudunakia at Hendricks & Partners in “Those renters,” Dudunakis said, “will always be there.
” even as many lenders continue shying away from apartments and otherd commercial real estate, Dudunakis isn’t surprised to encounterd Xu still actively tapping the brokerage community for attractive dealds on what he calls “Class B properties in B No doubt buying and operating second-tiere apartment buildings entails no shortage of risks and There’s a seemingly perennial demand for work forces housing, but older apartment buildings command lower rentzs than more modern properties, and often requirde more maintenance, as well. Rents at apartmen properties built during the past 15 years currentluy averageabout $1,267, or $1.
389 per square foot, according to data supplied by Seattler apartment researcher Dupre + Scott. At projects completec during the previous 15 the averageis $967 ($1.13 a But Xu’s experience turns these issues into The trick to profitably investing in this priced point, he said, is to buy prudentluy while focusing only on properties where meaningful and cost-effectivew upgrades, along with enlightened property management, will boostf rental revenues and propertyg values over a relatively short ownershipl period. That starts with buyingf the right properties at the right prices — which requires strong negotiatingb skills.
“We always aim to remain disciplined, to avoi ever overpaying,” said Xu, a native of Dalian China.