An investment firm backed by one of Orange County’s biggest names,Merage,thinks now’s the time to start buying real estate.
Stoneridge Capital Partners of Newport Beach, a privately held investor whose chairman is Hot Pockets creator Paul Merage, this month closed on a $70 million buy of a Rancho Santa Margarita apartment complex.
The 498-unit Avila Apartment Homes near the Foothill (241) Toll Road and Antonio Boulevard sold for about $140,500 per apartment.
It’s the first acquisition that Stoneridge has been part of in several years, according to Chief Executive Greg Merage, who handles day-to-day operations for the real estate investment firm.
His uncle is Paul Merage, whose name is on the business school at the University of California, Irvine, after pledging $30 million to the school in 2005.
More deals are expected. Stoneridge is looking to buy several hundred million dollars worth of properties in the next few years, according to Greg Merage.
“Avila is the first of many,” he said.
The firm’s looking at shopping centers, mid-range hotels, low- and mid-rise offices, multitenant industrial buildings and land for housing.
Along with Southern California, Stoneridge is targeting two other hard-hit markets,Phoenix and Las Vegas.
The firm’s expecting to hold on to some of its investments in troubled markets for as long as 10 years, Merage said.
Stoneridge is funded by the Merage family, which in addition to real estate also has investments in hedge funds and private equity deals.
Brothers Paul and David Merage founded Colorado’s Chef America Inc., which they sold to Nestl & #233; SA in 2002 for $2.6 billion. Paul Merage later moved to OC, where he has become a major philanthropist.
Leadership
Stoneridge counts more than the Merages.
The company’s board of advisers includes Dick Sim, formerly Irvine Company’s chairman of investment properties; William Gaboury, who until a few years ago was chief executive of Walnut-based J.F. Shea Co.’s Shea Properties in Aliso Viejo; and Larry Webb, who until last year was chief executive of Irvine’s John Laing Homes.
All three advisers have active roles in the company, as does Paul Merage, according to Greg Merage.
From 2002 to 2006, Stoneridge was more of a provider of investment money to developers and property buyers.
The firm then decided to become more of a direct investor, but had to wait a couple years for the right deal,and the right price,to come along.
In the past couple of years, “We were underwriting billions of dollars of properties, but we couldn’t justify the prices,” Merage said. “We’re now able to buy at a fair price.”
The deal was one of three local apartment complex sales made by Milwaukee-based Northwestern Mutual Life Insurance Co., which in total brought in about $200 million.
Other Sales
In one of the other sales, Newport Beach-based Pacific Coast Management paid $56.3 million for the Aventine at Aliso Viejo complex, which has 386 apartments. In the other, Walnut Creek-based Sequoia Equities Inc. paid $75 million for the Alize at Aliso Viejo complex, which has 484 units.
Joe Leon and Dean Zander of Hendricks & Partners Inc., as well as Ray Elridge and Kevin Mulhern of CB Richard Ellis Group Inc. brokered all three Northwestern sales.
All three complexes sold at per-apartment prices of $140,500 to $155,000, well below the going rate seen for local apartments in the past few years.
There were three large complex apartment sales in the county last year. They sold at an average of about $224,000 per apartment, or about 20% higher than the average sales price in 2007, when a dozen large complexes changed hands, according to RealFacts.
Apartment complexes’ capitalization rates,or the expected return from rents,have been at about 5% for the past few years. They’re expected to be in the 7% to 8% range this year, if not higher, thanks to lower prices.
But for apartments selling these days, “Valuations are still all over the board,” said Thomas Shelton, president of Western National Property Management, the apartment management arm of Irvine’s Western National Group.
Western National raised a $250 million fund about a year ago for investments, but it has opted against making any acquisitions to date.
“If you make a deal (now), you have to make money on the day the deal closes,” rather than on an expectation of rising rents, Shelton said.
Stoneridge said its deals largely will be done using cash, although some deals might include debt, Greg Merage said.
The firm will look at distressed properties, but that wasn’t the case with the Northwestern portfolio, he said.
