4801 Woodway 4801 Woodway Houston, Texas  77056   Property Description:  4801 Woodway is a 220,583 SF, four-story office building built in 1976 with 548 covered parking spaces and 154 surface spaces (702 total spaces) for a parking ratio of 3.24:1,000.  The building is located in the Galleria Office Submarket on the southeast corner of Woodway and South Post Oak Lane.

Deal Sourcing:

• Phil Capron (Falcon Southwest’s president) personally knew the individual that was selling the asset.
• Falcon Southwest used the listing broker for Woodway for management and leasing at other properties and was able to take an inside track by assuring the broker that they would retain the management and leasing business at Woodway.
• Structural problems cost the previous owner over $7,000,000 to correct, deterring many investors from seriously considering the property.

Strategy:

• Purchase the 79% leased property at an attractive price of $66.87 PSF with in-place rents averaging $17.71/sf and a cap rate of 9.61%.
• Upgrade the common areas and release the vacant space to stabilize the occupancy at 92% by the end of Year 3 as the local, national, and submarket conditions improve.

• Invest $500,000 to remodel and update the common areas.
• Monitor the re-engineered foundation to prove that the previous owner’s improvements solved the structural problem.

Investment Results

• Significantly enhanced the common area finishes to improve image of the asset.
• 3 years of foundation surveys proved structural issues were corrected.

• Actual performance significantly exceeded underwriting targets.

Biscayne Bay Apartments 300 East Warner Road Chandler, Arizona 85225   Property Description:  Biscayne Bay is a 512-unit Class A apartment community developed by AG Spanos in 2000 and 2001.  The property consists of 40 two-story buildings on 30.70 acres (16.68 units/acre) and is located in the southeast valley of Phoenix in the City of Chandler just east of the northeast corner of Warner Road and Arizona Avenue.

Deal Sourcing:

• Phoenix was a target market due to favorable macroeconomic trends.  Within Phoenix, the company focused on areas near job growth centers but away from new developments.
• Using conservative underwriting, the company made bids on numerous quality assets located within the targeted areas.  In most cases the pricing of the assets exceeded levels required to achieve acceptable returns on a risk-adjusted basis and the properties were eliminated from consideration.
• The initial bidding for Biscayne Bay resulted in a trading range that was lower than expected for assets of the same quality and similar location.  In addition, the seller had set a target date for disposition which made surety of closing very important.  Falcon Southwest, using its excellent relationship with the brokers and the company’s reputation for performing on purchase contracts, was chosen to purchase the property even though there were other bidders vying for the asset.

Strategy:

• Acquired the asset with sufficient current yield to reduce our reliance on capital appreciation to achieve IRR targets.  The excellent purchase price at a 5.7% cap rate (Class A sales in 2004 were in a range of 4.75% to 5.25%) makes this possible.
• Operate at high levels relative to competition using proactive asset management to maximize NOI for disposition.
• Monitor the Phoenix market and dispose of the asset when the investment market is favorable.

Investment Results

• Initial operating results were satisfactory but property was not achieving full potential.  Falcon Southwest chose to proactively change management companies which resulted in better operating results.
• Implemented minor finish upgrades in units to achieve higher rents as the market strengthened.
• Recognized improved investment climate and sold the property into strong sales market at a 5.0% cap rate after 29 months of ownership.
• Actual performance significantly exceeded underwriting targets.

Hillcrest Oaks Apartments 3501 South First Street Austin, Texas 78704   Property Description:  Hillcrest Oaks is a 140-unit Class B- apartment community developed in 1972.  The property consists of 12 two-story buildings on 4.84 acres (28.90 units/acre) and is located near Austin’s hip SoCo district just 2½ miles south of the CBD.

Deal Sourcing:

• In 2003, improving demographics and gentrification made close-in South Austin a target area for Falcon Southwest.
• Utilizing a key broker contact, the company made an off-market offer on the unlisted property.  Hillcrest Oaks was the Florida-based seller’s only asset in Austin, and it was performing quite poorly due to road construction in front of the property and a lack of asset management focus. 
• The seller was seeking a quick transaction (with a local buyer familiar with the market) before the property was added to a refinance pool. 

Strategy:

• Apply a more aggressive asset management strategy utilizing our local market knowledge. 
• As the road construction on South First Street is completed in late-2004 and as the overall Austin multifamily market recovers, reduce concessions and increase occupancy. Throughout the road construction, occupancy at the property suffered significantly.  At the time of acquisition, occupancy was approximately 65%, after measuring 95% in mid-2002; the competitive market was 89% occupied at this time. 
• It was assumed that the seller’s lack of focus on Austin and the recent poor performance at the property caused them to seek a quick disposition of the asset.   Falcon Southwest recognized the seller’s situation and the planned construction completion as opportunities to reposition the property in the market.
• Upgrade interiors to achieve higher rents as tenant profile improves.
• Monitor the Austin market and sell the property when investment climate is favorable.

Investment Results

• Implemented an upgrade focused on landscape appeal and select interior improvements in order to achieve higher rents as the market strengthened. 
• Brought occupancy up to 94% within 9 months of acquisition.
• Recognized improved investment market and sold the property into a strong sales market at a sub-5% cap rate after a 23- month holding period.
• Actual performance significantly exceeded underwriting targets.

Northern Greens Apartments 8150 North 61st Avenue Glendale, Arizona 85302   Property Description:  Northern Greens is a 420-unit Class B apartment community that was developed in 1988.  The property consists of 14 three-story buildings on 17.307 acres (24.23 units/acre) and is located in Glendale, 25 minutes northwest of downtown Phoenix.  It is situated north of I-10 and West of I-17 near the intersection of 61st Avenue and Northern Avenue.

Deal Sourcing:

• Falcon Southwest had been aggressively courting key sales brokers in the Phoenix market to find off-market transactions.
• A local broker knew that Northern Greens was the seller’s last asset in Phoenix and believed that they would accept an unsolicited offer for the property.
• Based on the company’s track record, the broker chose to work with Falcon Southwest to negotiate this unsolicited/off-market transaction.

Strategy:

• The property was encumbered with an existing non-recourse, fully assumable Fannie Mae loan that would not mature for 5 years.  The loan balance represented 79.5% of the purchase price and was not resizable.  It carried a 6.23% interest rate with 30-year amortization, which was considered unfavorable at the time.    The unattractive debt resulted in a discounted purchase price.
• Purchase the “B” community at a 7.48% going-in cap rate. 
• Employ an aggressive management strategy to improve occupancy and reduce concessions.
• Undertake select improvements including upgrading the landscaping and painting of trim and railings. 

Investment Results

• Implemented a moderate upgrade of the property to increase its appeal.
• Recognized improved investment climate and sold the property into a strong sales market at a sub-5% cap rate after 36 months of ownership.
• Actual performance significantly exceeded underwriting targets.