Case Studies
COMPTON SUBSIDIZEDOVERVIEW: The 164 unit multifamily housing complex know as New Wilmington Arms was originally built in the early 1970's by one of southern California's preeminent housing developers, Goldrich & Kest. The complex offers large family units, with a few one bedrooms, more two bedrooms, and a large offering of three bedroom and four bedroom units. See Low Income Housing.
Developed under HUD’s 236 program and coupled with a long term Housing Assistance Payments (HAP) contract, occupancy at
the site has never been an issue. The tenant portion of the rent is calculated using federal certification standards wherein
the tenants pay no more than approximately 30% of their annual income toward housing costs.
Between 1972, when the property first came on line, and the late 1990's, the owners obtained annual rent increases to cover higher operating costs and boost their return on equity capital, until by the late 1990's rents for this property were relatively high. A large part of this income went to service high levels of debt and rehab loans used to previously upgrade or modernize the property.
HUD began playing with the idea of re-structuring the debt on subsidized properties. The basic idea was simple... if the debt could be reduced, the relative amount of section 8 subsidy being paid to service that high debt could also be shrunk. Thus was born the "Mark-to-Market" program (M2M)
New Wilmington Arms became involved in M2M shortly after Peergroup took over property management in late 1999. Over the next 18 months, Peergroup was intimately involved with rental studies, physical assessments, and the various tasks required to restructure the property.
In the end, the restructuring was completed in May 2001 and the property emerged with a new debt structure that required active monthly loan servicing at about 30% of the former debt level, and saw the actual rents for the property reduced by as much as 30-35%. This rental savings accrues directly to HUD and Congress, now faced with a far smaller budgeting burden as a result of the reduced section 8 subsidy contracts
EAST LOS ANGELES INDUSTRIALOVERVIEW: The 100,000 square foot industrial complex at the corner of Olympic Blvd., and Mirasol in East Los Angeles was originally acquired in the late 40's by David Schein, an old-school real estate wizard who loved hard work and expected others to follow suit. By the late 1990's, Mr. Schein was slowing physically due to age, and he asked Peergroup to help him with the management of the Mirasol complex.
Since that time, the property has gone through a number of changes, with a leasing specialist from the Heger Company overseeing leasing, the large anchor enant, Brite Plating, being acquired by new interests and infusing a great deal of working capital into their portion of the premises, a number of physical improvements and measures completed to upgrade the property physically and environmentally, and constant monitoring of the tenants by the Peergroup staff.
PROPERTY DESCRIPTION: The property consists of one large building and a much smaller outbuilding at the rear. By their vary nature, the operations of the tenants here define the property as gritty industrial providing essential manufacturing services to several industries. Occupants consist of electroplating companies serving numerous furniture manufacturers and auto parts firms; garment cutters and sewers serving the clothing industry, metal stamping and fabrication operations, and import/export warehousing.
RENTS. The rental structure was of secondary importance to Mr. Schein when he operated the property. His concern was to provide a home for his business and the businesses of friends and associates. As environmental standards became more strictly enforced, a number of older tenants could no longer comply with the air and water quality requirements and simply moved on or went out of business. This left a void for Peergroup and the leasing concerns to fill with new tenants who could fit into this new niche. After several years of successful operations with several new tenants, the overall income for the property has virtually doubled.
TURN AROUND OF AN UNDER-ACHIEVING PROPERTY 7124-7136 MILES AVENUE, HUNTINGTON PARKOVERVIEW: Peergroup was presented with the opportunity to takeover the 37 unit apartment and commercial buildings located at 7124-7136 Miles Avenue in Huntington Park. The property suffered from deferred maintenance and poor fiscal management, causing the rents to be unusually low, with little surplus cash available to be re-invested into the property.
PROPERTY DESCRIPTION: The property consists of three buildings. Pictured above is the largest of the three, with the second building at the rear. Florence Boulevard is in the foreground. The large building is 7136 Miles Avenue, three stories in height, and built in 1929, housing 20 units and 5 commercial storefronts, which face Florence Blvd. The smaller building in the background is 7132 Miles Avenue, a two-story apartment building housing 11 apartments. Finally, there is a detached single-family house at 7124 Miles Avenue, not shown in the photo.
RENTS: The former owners lost touch with the rental market. Annual income for the property in 2004 was estimated at $224,100. Peergroup saw a significant opportunity for both increasing the rents and improving the property by staying on top of the local rental market and bringing the propertys income current with the market.
After taking over the property and auditing the existing leases, inspecting the interior conditions of the units, and making numerous improvements to the residential and commercial units, Peergroup was able to implement rent increases over the first 24 month period to bring the annualized income up to $302,000, representing a 34.8% rent increase on average income.