Thoughts On Behringer Harvard Multifamily's Recent Acquisitions
Over the past week Behringer Harvard Multifamily REIT I announced two investments. The first is a 320-unit to-be-built apartment complex in Houston, TX. The REIT will make a mezzanine loan investment in the development. I am guessing the loan will accrue interest, which along with the principal, will convert to equity when the property's construction is complete and a permanent mortgage is obtained.
The second property is a 179-unit apartment complex, originally built in 2007 as condos, in downtown San Francisco. The purchase price was $94 million, or $525,000 per unit. Here is the 8-K filing. Here is an article from a San Francisco real estate blog, Socketsite. The comments are interesting, especially the one that says the cap rate was less than 4%, which is amazing if true.
There was little financial detail provided in the two filings. On the surface it appears the Houston investment will not generate meaningful cash flow in the immediate future, unless the mezzanine investment pays current interest rather than accrued interest. The property's construction is slated for an early 2012 completion, and then it'll have a lease-up period that could take another twelve to eighteen months, so you looking at approximately two years before it is fully operational. Absent financial data, the return on the San Francisco property is open for speculation.
What is known is that at year-end 2010, Behringer Harvard Multifamily I's cash from operations and Funds From Operations (FFO) only comprised 5.5% and 15.9%, respectively, of its distributions, with the shortfall paid from offering proceeds. The REIT closes its offering period at the end of July, meaning its largest source of distribution financing is ending. While these two properites are only part of a now thirty-five property portfolio, I would have thought the REIT would show more urgency in its efforts to cover its distribution from property cash flow.