Two local companies are looking to raise $2.75 billion in a pair of real estate investment trusts to buy apartments across the country.
Newport Beach-based Steadfast Cos. and Irvine’s Passco Cos. both have plans in the works to start funds this year.
Steadfast Income REIT Inc. is looking to raise as much as $1.65 billion for its fund, while the Passco Apartment REIT Inc. is hoping to get about $1.1 billion from investors.
Updated registrations statements for the funds were filed with the Securities and Exchange Commission earlier this month. Shares in the funds won’t be publicly traded but still have to be registered with the SEC.
A time frame for when each fund—which will raise money on an ongoing basis—could launch in earnest hasn’t been disclosed.
Steadfast plans to start looking to buy properties once its raises more than $2 million, while Passco has set a minimum offering at $2.5 million.
Each company has its eyes on investing the bulk of money raised in apartments, which are rife with properties in some kind of financial distress.
On a national basis, apartment vacancy runs about 8%, up from 6% a couple years ago. In Orange County, about 7% of the area’s apartments are empty, up from 3% in 2008.
Rents across the country are expected to fall almost 2% this year, after a similar drop in 2009, according to Marcus & Millichap Real Estate Investment Services Inc.
OC’s rents, which are already off more than 6% from 2008 levels, could fall another 3% this year to $1,414 per month on average, according to Marcus & Millichap.
Although apartment vacancies across the U.S. are expected to continue to increase through 2010, Steadfast sees that changing next year.
Steadfast plans to use as much as 75% of the money it raises to buy apartments, with the rest for industrial and other investments.
Passco said it also could invest in other property types, as well as acquire other related assets, such as debt, securities and mortgages.
Steadfast and Passco are the two latest OC companies looking to launch non-traded real estate investment trusts, which fix the price of shares sold to investors and continue to raise money beyond an official offering.
Other local companies, including Newport Beach’s KBS Realty Advisors, Santa Ana-based Grubb & Ellis Co. and Irvine’s Thompson National Properties LLC, have raised more than $3 billion in the past few years with similar ventures that have targeted offices, shopping centers, industrial buildings, self-storage facilities and land, among other property types.
Apartments
Two other non-traded funds based in OC already specifically target apartments.
The Grubb & Ellis Apartment REIT, launched in 2006, has raised close to $180 million. The Santa Ana-based venture recently announced a $17.4 million deal to buy a Texas complex, its first large acquisition in more than a year.
KBS Realty has five non-traded funds in various stages of fundraising. One, KBS Legacy Apartment Community REIT Inc., wants to raise up to $2.8 billion to buy apartments.
That KBS offering, made in a partnership with Foster City-based Legacy Partners Inc., was first filed with the SEC in mid-2009 but has yet to be declared effective.
Both Steadfast’s and Passco’s offerings come from long-established local real estate companies that have been working to reinvent themselves during the down market.
Steadfast has developed and acquired more than 20,000 apartments and 5.2 million square feet of commercial space since founder and Chief Executive Rodney Emery started the company in 1994.
Last year the company launched a securities and financial services division called Steadfast Capital Markets Group LLC. The division plans to raise money to buy distressed assets.
Aaron Cook is the capital market division’s president and chief executive. He previously was a managing director and national sales manager for Santa Ana-based Triple Net Properties LLC, which now operates as Grubb & Ellis.
Like Triple Net, Passco made its name earlier this decade raising funds and buying properties for tenant-in-common deals, where smaller investors pool their money together to buy buildings. That market has virtually disappeared during the downturn.
Tenant-in-common deal-making is now off more than 90% from 2006 levels, according to Salt Lake City-based research company Omni Real Estate Services Inc.
Passco and its predecessor company bought more than $1 billion of assets since 1998, largely in tenant-in-common deals, according to the company’s registration statement.
