NEW YORK, NY - Gaia Real Estate and a controlled affiliate of Starwood Capital Group, a leading global private investment firm, announced today that they have agreed to invest $22.5 million of new equity to acquire and recapitalize PJ Finance Company, which filed for Chapter 11 bankruptcy protection in March 2011 and reemerged as a going concern on May 11, 2012.
PJ Finance Company's assets include a multifamily portfolio consisting of over 9,500 multifamily units located in major metropolitan areas throughout the high-growth Sunbelt region. More than 45% of units are located in Dallas, TX, with additional concentrations in Phoenix, AZ (19%), Atlanta, GA (8%), Houston, TX (8%), and Fort Lauderdale, FL (7%), Corpus Christi, TX (6%), Nashville, TN (5%), and Orlando, FL (3%).
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.
In March 2011, PJ Finance Company filed for Chapter 11 bankruptcy protection. As part of the recapitalization agreement, the debt has been restructured into three tiers; 1st Tier in the amount of $423 million, 2nd Tier in the amount of $52 million, and 3rd Tier in the amount of $28 million. Interest only shall be payable on the 1st Tier during the term of the loan, with no interest payable on the 2nd and 3rd Tier. The loan matures in 2020. While in Chapter 11, $14 million was re-invested into the portfolio, and current occupancy has dramatically improved to more than 90% as nearly 1,000 units were brought back online.
"We are excited to partner with Gaia to unlock all the substantial upside potential in these attractive assets," said 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."
Gaia and Starwood will invest their capital as part of the restructuring to recapitalize the company and continue the stabilization of the portfolio. The new equity will earn a 16% preferred return and all principal and interest will be senior to the loan's principal. The capital will be used primarily for deferred maintenance, capital improvements and renovation work.
Over the next eight years, Starwood and Gaia plan to implement a $45 million capital improvement plan. Gaia and Starwood have engaged Pinnacle Company, one of the largest property management companies in the United States to manage the portfolio and assist in executing the improvement plan.
Gaia Real Estate, founded in 2009, is a Real Estate investment, property management and brokerage Company with headquarters in New York City and additional offices in New Jersey, Texas and Israel. Gaia pursues a range of real estate investments with a focus on residential and commercial properties. The group currently has 70 employees.
Starwood Capital Group is a private, U.S.-based investment firm with a core focus on global real estate. Since the group's inception in 1991, the firm has raised over $14 billion of equity capital and, through its various funds, has invested $12 billion representing over $32 billion in assets. Starwood Capital Group currently has over $19 billion of assets under management. Starwood Capital Group maintains offices in Greenwich, Atlanta, San Francisco, Washington, D.C. and Los Angeles, and affiliated offices in London, Luxembourg, Paris, Mumbai and Sao Paulo. Starwood Capital Group has invested in nearly every class of real estate on a global basis, including office, retail, residential, senior housing, golf, hotels, resorts and industrial assets. Starwood Capital Group and its affiliates have successfully executed an investment strategy that includes building enterprises around core real estate portfolios in both the private and public markets.