New York-based Gaia Real Estate and Starwood Capital Group, based in Greenwich, Conn., have announced plans to invest $22.5 million of new equity to acquire and recapitalize PJ Finance Co., which filed for Chapter 11 bankruptcy protection in March 2011 and reemerged as a going concern on May 11, 2012. PJ Finance's assets include a multifamily portfolio consisting of over 9,500 multifamily units located in major metropolitan areas throughout the Sunbelt region, with more than 45% of units located in Dallas and 19% in Phoenix.
According to the companies, the portfolio was originally acquired in 2001 and recapitalized with more than $540 million of securitized debt financing in 2006, at a valuation of $580 million. During the downturn, the portfolio struggled under its heavy debt load and occupancy suffered as capital was unavailable to turnover units for new tenants. At one point, more than 1,700 units were taken offline and occupancy troughed at 72% in markets that enjoyed substantially (90%+) lower vacancies.
As part of the recapitalization agreement, the debt has been restructured into three tiers: a first tier in the amount of $423 million, a second tier in the amount of $52 million and a third tier in the amount of $28 million. Interest only shall be payable on the first tier during the term of the loan, with no interest payable on the other tiers. The loan matures in 2020.
‘We are excited to partner with Gaia to unlock all the substantial upside potential in these attractive assets,’ says Chris Graham, managing director of Starwood Capital Group. ‘We believe the structure of this investment is quite unique, and allows us to maximize the value of the portfolio with very little downside risk.’
Over the next eight years, Starwood and Gaia plan to implement a $45 million capital improvement plan. The companies have engaged Pinnacle Co. to manage the portfolio and assist in executing the improvement plan.