Tarak Patolia, Sterling American's senior vice president and acquisitions chief, tells GlobeSt.com that the portfolio won't be the only purchase in Houston in 2004, with the checkbook ready to come out as opportunities arise. On the upcoming transaction, the only information he's giving out about the seller is that it's a partnership that Sterling American has done business with in the past.
In keeping with Sterling American's MO, the portfolio contains turnaround opportunities that Patolia says will be gleaned from an "efficient capital structure" and about $2.5 million in renovations plus hands-on management from its Houston staff. The purchase will close with backing from Sterling American's fourth fund, started last year with $300 million of internal capital and $100 million from co-investors. The fund, expected to run about three years, will be used to fuel $1.1 billion to $1.2 billion of real estate acquisitions.
According to Paula Newton, Texas asset manager for Sterling American, the portfolio contains six properties in Houston: one near Humble and another along Aldine Bender Road, both on the north side; two near the intersection of Texas 249 and Sam Houston Tollway in the northwest submarket; and two near Dairy Ashford Road on the west side.
Sterling American's current Houston portfolio consists of five multifamily properties, totaling 2,061 units. Patolia says the 91%-occupied package has been generating rent increases of 2% to 3% each year, keeping optimism high about the region's multifamily market although another 20,000 units will come on line in 2004. The market softening, he insists, will only be temporary.
According to Patolia, outside investors no longer view Houston as a "one- or two-horse economy" as they did in the past with its reliance on the oil and gas industry. Not only has the city's diversification been "amazing," he says, but five years of construction constraint has been an added boon.
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