Irvine’s Atherton-Newport Investments LLC is on track to do $250 million worth of apartment and land buys this year.
The company bought its first apartment building for $900,000 in 2001.
Atherton was formed four years ago by two men who met while working at San Francisco-based apartment owner BRE Properties Inc.: Ashish Khatana and Roger Fiola.
For the first couple of years they kept a low profile, recruiting staff and figuring out what they wanted to buy and where to do it.
Now the company has 27 workers, including five charged with finding deals.
They bought about $70 million worth of apartments and land last year.
The company and its investors own about 2,500 apartments. None are in OC.
Atherton buys and sells apartments and land in California, Nevada, Washington, Florida, Connecticut and New York.
Some of Atherton’s investors are recognizable names, such as baseball players with the Los Angeles Angels of Anaheim and the Los Angeles Dodgers, Khatana said. He declined to name the players.
Earlier this month the company paid about $13 million for two apartment complexes near Seattle.
Khatana said he’s attracted to markets, such as Seattle, which have little new development or land to build on. An added bonus: Some other Seattle-area apartment owners have converted their units to condominiums, further limiting supply.
Seattle is set to add about 40,000 jobs next year, a good sign for the apartment market, he said.
The company should close escrow early next year on another portfolio of more than 1,000 apartments around Seattle, Khatana said.
Atherton’s business model is fairly simple. The company buys apartments, spruces them up, raise rents and sells them. The company also buys land, has it approved,or entitled,for building apartments, condominiums or houses, and sells it.
In July the company won approval from Cypress’ City Council to build 28 homes at 6151 Ball Road.
Khatana said he’s getting inquiries from some large homebuilders, even though big builders typically like to put up several hundred homes per project.
“You would never have seen that three or four years ago,” he said of the builder interest in this hot housing market.
Khatana previously oversaw BRE Properties’ development and acquisitions for all of Southern California, he said. Fiola was a director of acquisitions at BRE Properties, also covering the Southland.
Fiola said starting Atherton in 2001 was the first time the partners did deals without the backing of a big company.
“We spent two years growing the company,” Fiola said.
The partners said their investors typically earn 40% or more annually on their money.
“We don’t guarantee that, but that has been the portfolio average since we founded the company,” Khatana said.
Atherton combines the money of its investors with 75% debt on acquisitions, Khatana said. The partners also put their own cash in deals.
That’s a common debt level among smaller companies here. Larger owners, such as The Irvine Company, often carry debt closer to 50%.
Atherton uses adjustable-rate loans for its borrowing, Khatana said. Since the company buys apartments in need of a facelift, it’s difficult to get a low fixed-rate loan, he said.
The partners expect to do $350 million to $400 million in acquisitions next year, or about 50% more than this year. They declined to state the company’s annual revenue.
The partners have concerns about rising interest rates.
Amid low rates during the past few years, apartment values have increased, though not as dramatically as homes. They said apartment rents should increase 6% nationally next year, raising the value of apartments closer to what they are selling for these days.
But higher rates could raise their borrowing costs and cut profit margins.
