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VOL. 122 | NO. 201 | Tuesday, October 23, 2007

Watergrove Transaction Sets Multifamily Price Record

By Eric Smith

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With 22 acres of lakes dotted across its sprawling footprint near Tenn. 385, Watergrove Townhomes has been one of the more recognizable properties in the Hickory Hill area for the past 20 years.

Thanks to the arrival of Philadelphia-based BPG Properties Ltd., the 1,002-unit Class B complex can now add another distinction to its resume - most lucrative.

BPG, a private equity real estate firm, bought Watergrove for $46 million, or $45,908 per unit, from Fogelman Realty Group LLC, the Fogelman family's long-term real estate investment entity.

The price set a record for the largest single multifamily transaction in the market, said Blake Pera, senior vice president at CB Richard Ellis Memphis, which brokered the deal.

The transaction is another among the numerous high-dollar deals drastically changing the landscape of Memphis' commercial real estate as local owners continue selling properties to out-of-town investors.

"Memphis has been a targeted market for national buyers for many years, and we do not expect this to change any time soon," Pera said. "Investors see a healthy investment market with stable job growth and attractive pricing. They also see a market with continued upside and growth potential."

Curb appeal

Rick Fogelman, president and CEO of Fogelman Properties, said the company sold Watergrove mainly because it bought Legacy Farms Apartments in Collierville last June for $36.5 million.

"We saw an opportunity to position our family portfolio by trading out of Watergrove into a newer property that we felt was well-positioned for the future," he said. "It's really just a matter of switching asset for asset. Watergrove has been a great performer for us for a long time. We felt, though, that it was time for our family entity to 'de-age' our portfolio."

Despite its age, Watergrove has retained its vitality. Situated a few miles east of the junction of 385 and Interstate 240, and close to commercial and retail centers, Watergrove comprises 155 one- and two-story buildings on 144 acres.

Occupancy at Watergrove, which was completed in 1987, is about 94 percent. The property has one- and two-bedroom apartments with average rents of $646 and $753, respectively, according to the Apartment Association of Greater Memphis.

Watergrove features an array of amenities, from swimming pools to playgrounds, tennis courts to clubhouses. But its signature feature is its landscaping, namely the 22 acres of lakes that often teem with wildlife.

"We love the unique aspect of the property," said Steve Pogarsky, the BPG vice president who managed the company's acquisition. "It's got unique curb appeal and it's in a submarket that's one of the strongest within the Memphis market. We feel like we had the opportunity to acquire the property, spend some money on sprucing it up and present a nice product back to the marketplace."

Taking it to the next level

Pogarsky said the company will invest $5 million during the next two years on a capital expenditure campaign. The money will go toward rehabilitating exteriors, infrastructure, roofing, siding, parking lots, landscaping and clubhouses.

"From a physical standpoint, the property will be improved and it will show nicer," he said. "We're going to freshen up the property to make it more satisfying."

Fogelman lauded BPG's plans for Watergrove.

"They have plans to take Watergrove to the next level as it relates to reinvigorating the property," he said. "With my dad (Avron B. Fogelman) having developed that property 20 years ago, in some ways it's bittersweet because it's been a part of our portfolio for such a long time. In the same way, we're very pleased with BPG's reputation. They're very good owners."

The property soon will be rebranded as Madison at Cypress Lakes, a nod to BPG's multifamily operating arm, Madison Apartment Group LP, also based in Philadelphia.

Despite the renaming, the old Watergrove should continue to perform well in the tight submarket, said Pera, who agreed that BPG should be able to spruce up what has served as an attractive asset for Fogelman Properties for two decades.

"Watergrove is well known throughout the market, and the improvements planned for the property will allow it to continue to be an attractive draw with its strategic location in East Memphis," Pera said.

Tennessee forays

This investment, BPG's first in Memphis, is part of an $850 million fund the company is managing. BPG invests in office, retail, industrial and multifamily properties throughout the country; its portfolio is currently about 20 million square feet.

The company discovered Memphis - and specifically Watergrove - thanks to a past multifamily purchase from Fogelman Properties in Nashville. CBRE also brokered that deal.

So when Fogelman marketed Watergrove, Pogarsky said BPG jumped at the chance.

"It's a nice complementary fit for our existing assets in Nashville," Pogarsky said. "Memphis was a natural extension."

But what are BPG's plans for Watergrove after completing its overhaul?

"We're not flippers," Pogarsky said. "You never know how long you're going to hold it, but our expectation is that we would hold it for at least five to seven years. At that point, you make a decision, depending on how the investment environment looks at that point, whether to hold or sell or refinance."

Also, Pogarsky said the company plans to investigate Memphis further for commercial investments.

"Whenever we enter a new market, we always look to acquire more properties just to leverage our knowledge of the market and our operating experience in the market," Pogarsky said. "We have our eyes open for additional opportunities as they come along."

PROPERTY SALES 128 234 13,285
MORTGAGES 80 152 8,323
BANKRUPTCIES 42 79 6,299