Decron Properties Spends $56M on Santa Clara Multi-Family

February 22, 2012
By Gail Kalinoski, Contributing Editor

Continuing its recent focus on the multi-family market, Decron Properties has acquired The Madison at Town Center, a Class A, 264-apartment community in Santa Clarita, Calif., for $56.5 million. Decron, a Los-Angeles based real estate investment company, has now purchased 1,500 units in the past 18 months.

The Madison was built in 2004 as a luxury, 341-unit apartment complex. A year later, it was converted to condominiums when Prado Town Center West L.L.C. bought the property. Between 2006 and 2007, Prado sold 77 condo units. The remaining units have been used as rentals.

Decron represented itself while Laurie Lustig-Bower of CBRE Group Inc. handled the transaction for the seller.

Under the LIBOR-based Citibank financing, the company should yield an initial 6 percent cash-on-cash return, David Nagel, Decron’s president, said. Because of the low unit prices, Decron expects its investors to get a double-digit IRR of nearly 20 percent when it eventually sells the property, he added.

Decron owns and manages 4,300 residential units and is developing another 550 units. With this acquisition, Decron has added 1,500 units in 18 months, a 40 percent increase in its total multi-family holdings. The company is also looking at acquiring another 1,000 units of ‘busted’ condos to manage as rentals until the housing market stabilizes and they can be sold.

“REITs have been reluctant to purchase ‘busted condos’ due to the complexities that come with managing such residential communities,” Nagel said. “Decron can leverage its experience and banking relationships to achieve high yield opportunities through similar types of deals.”

The firm has been seeking distressed deals for multi-family housing as well as vacant Class A office and retail properties. In October, 2010, Decron bought a 363-unit apartment complex in West Los Angeles by purchasing the note from the property’s lender. It then foreclosed on the borrower and took title 90 days later.

Decron, the real estate investment and development arm of the Nagel Family Trust, has over 7 million square feet of assets worth more than $1.5 billion, including retail centers, office buildings, marinas and multi-family buildings in California.

It won’t be the only investment company seeking apartment buildings this year. The multi-family sector is expected to continue to be hot as people focus more on renting than owning while the economy recovers. In its 2012 National Apartment Report, Marcus & Millichap Real Estate Investment Services noted that all 44 of the markets it tracked expect to see rent growth this year, according to a recent Commercial Property Executive story.  The Marcus and Millichap report also found that U.S. apartment vacancy should drop 40 basis points to 5 percent by the end of 2012 and rents should rise 4.8 percent.

Decron, which intends to continue renting out the 264 units, said it paid approximately $215,000 per unit, about 40 percent below the average selling price of the condos in 2006 and 2007. Monthly rents range from $1,425 for a one-bedroom, one-bath apartment up to $2,450 for a three-bedroom, one-bath unit. Two-bedroom, two-bath units rent for about $1,850 to $2,195. Amenities include a fitness center, pool and movie screening room. It is 95 percent leased.