Buys 12 rental complexes from area developer

N.Y. REIT

Home Properties pays $157 million for Macks & Macks units

July 17, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Continuing an acquisition frenzy that began early this year, a New York real estate investment trust yesterday spent $157.5 million to buy a dozen apartment complexes from affiliates of Macks & Macks Inc., one of the area's oldest residential developers.

The purchase by Home Properties of New York Inc. marks the latest in a series of transactions intended to increase the size of its regional portfolio. Since January, the real estate investment trust has spent $390 million on new multifamily projects.

The Macks projects add nearly 3,300 units to the Rochester, N.Y.-based REIT's holdings. It now controls 289 communities containing 43,473 apartment units in 12 states, from Maryland to Michigan.

"The excellent physical condition and high occupancy level of this portfolio will allow Home Properties to quickly concentrate on raising rental revenue," said Norman Leenhouts, the REIT's chairman and co-chief executive. "With this transaction, we have strengthened our regional operations in Baltimore, where we now own a total of over 6,000 units."

The 12 Macks complexes, located in the Baltimore and Wilmington, Del., metropolitan areas, rent for an average $630 per month and are 97.2 percent occupied. The complexes are an average 20 years old and feature amenities such as swimming pools, fitness centers, playgrounds and laundry facilities.

Amy L. Tait, a Home Properties executive vice president, said the company has no immediate plans to raise rents on the Macks units, some of which are supported by federal Section 8 housing vouchers.

As part of the transaction, Home Properties paid Macks $42.4 million in cash and assumed $85.9 million in debt, mortgages that carry a weighted average interest rate of 8.1 percent and mature in 26 years. The REIT also provided Macks with operating partnership units valued at $29.2 million, or $25 per share, that may be exchanged for Home Properties common stock.

For Macks, which has been building homes and apartments in this area for nearly five decades, the sale involves all of its residential multifamily holdings. One hundred and thirty Macks property management and administrative employees will join Home Properties.

Macks officials said the company was attracted to Home Properties in part because of general trends in the apartment business.

"We believe the consolidation of the rental real estate industry is inevitable and a beneficial tide," said Josh Fidler, president of Vector Property Management, the Macks' property management company. "But you don't want to swim up that stream. And Home Properties' structure for the transaction was both very flexible and favorable to us and all of our partners."

Despite the sale, Macks entities plan to develop three new apartment complexes, beginning next year, in Manassas, Va., White Marsh and Frederick. In all, the three new projects will contain 2,080 units, Fidler said.

Home Properties, ranked as the 26th-largest apartment owner in the country by the National Multi-Family Housing Council, intends to invest $1.6 million to improve the Macks projects it bought.

It will also make further investments to replace windows and remodel kitchens as warranted. The company expects the Macks portfolio to generate an initial 10 percent unleveraged return.

The Macks deal represents the second large transaction completed by Home Properties this month. On July 1, the REIT bought seven apartment complexes from Community Realty Co. Inc. of Gaithersburg, for $180.6 million.

The seven complexes contain 3,722 units in the Baltimore, Washington and Richmond, Va., areas.

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