• Fri. Dec 9th, 2022

BH Properties is growing rapidly through creative real estate investments

Sawtelle-based BH Properties has grown rapidly since its inception in 1994. Today, the company has approximately 10 million square feet of retail assets and 2,100 multi-family units. About 25% of the company’s multi-family properties and 15% of its commercial holdings are in Southern California.

It now has regional offices in Phoenix and Dallas, and a team of 55 employees.

BH Properties Chairman Jim Brooks described the company as a “value-added, product-independent investor”, meaning it is interested in all types of assets. He added that not focusing on just one type of asset opens up more possibilities for the business.

This approach prepares BH Properties for further growth in the coming year.

The company is focused on the western United States and manages its own portfolio, including providing leasing and construction management.

“Over our 30 years, we’ve been heavily invested in Southern California, Arizona and Texas,” Brooks said. “Our relationships in these markets are incredibly strong.”

Andrew Van Tuyle, senior managing director of investments at BH Properties, added that these regions are “easy to get to” and have seen strong growth.

“We’ve seen a big recovery there and a lot of migration,” Van Tuyle said.
The company has also differentiated itself by not engaging outside investors or partners.

“One of the characteristics of the organization is that we are incredibly nimble given that we don’t have outside partners and investors. This allows us to make decisions quickly,” Brooks said.

He added that he is also attractive to companies selling to BH Properties because he can make offers quickly and does not have to deal with things through partners or investors.

Van Tuyle added that the lack of outside parties involved allows BH Investors to be more creative.

“It’s by taking advantage of our flexibility and creativity that we’ll see the most opportunities,” he said. “Without a hard mandate, our ability to pivot is exceptional.”

Today, the company is working on value-added transactions and increasing the number of transactions it makes in types of assets that some companies avoid: retail, distressed debt and land leases.

best buy

The company relies heavily on retail and the acquisition of properties, even those with a high vacancy rate.

“We can often be a contrarian investor,” Van Tuyle said. “We buy vacancy or pending vacancy or partial vacancy. We don’t know many people who buy these kinds of transactions. »

One of the company’s recent acquisitions is a vacant 103,000 square foot big-box flagship building at the Valle Vista Mall in Texas, which the company sees as a repositioning opportunity.

Van Tuyle said the company is considering creative ways to modify these malls, such as converting big box stores into multiple smaller stores to house multiple retailers, converting stores into call centers or even industrial conversions. .

“We predicted a few years ago that retailers were going to struggle over the next few years due to the impact of Amazon, and the pandemic has accelerated that. We’ve seen malls really go downhill,” Van Tuyle said.

Brooks added: “Covid has really infuriated all of this, including the accelerated demise of brick-and-mortar retail,” and BH Properties was able to benefit from the trends.
Van Tuyle said that when deciding whether to invest in an asset, BH Properties consider “what other use could be” for the centre.

For example, the company converted a vacant manufacturing building acquired by a nonprofit organization into a call center.
“Being able to look at a building and say what the highest and best use is today, not just historically, is important,” Van Tuyle said.

This view allows the company to acquire types of business assets that others do not want.
“Big box retail right now…there’s not a million buyers for that kind of opportunity,” he added.

Troubled debt

Another area of ​​interest to BH Properties is distressed debt.

“We’ve done a lot of distressed debt type assets over the years. Over the past three to six years, we’ve seen that heat increase,” Van Tuyle said.

One of the most recent such transactions occurred in August when BH Properties provided California-Nevada Methodist Homes with debtor-in-possession financing worth $5 million. CNMH filed for Chapter 11 bankruptcy in March.

The money came from BH Properties’ $200 million debtor-in-possession platform.
But Van Tuyle said distressed debt assets haven’t been as easy to come by lately as BH had expected.

“There was an industry-wide expectation that we were going to see this flood of ready-to-sell like we did in 2009 and 2010, and it didn’t happen,” he said. declared.

Now, however, he’s starting to see more of it as eviction moratoriums lift and “lenders (don’t want to) deal with the foreclosure process.”

“We are seeing more and more loans coming into the market and believe it will be a dynamic market the rest of this year and into 2022,” he added.

Land lease

Van Tuyle said there was “a little pause” in the land lease market, but he sees it picking up, so the company also remains interested in these deals as an opportunity for growth.

In a land lease, a business leases the land on which a property sits instead of all or part of a building. The group with the ground lease can develop the property and even lease the building, while paying to lease the land itself.

“The tenant or the developer who’s been hired is building the property at their own expense,” said Chris Maling, director of Avison Young Inc. “If they don’t renew (their lease), that building is yours as owner of the land The reason people love land leases is that it is a lower rent structure that is sustainable for the tenant.

“The main advantage is that the upgrades can come back to you for free to the owner,” he added. “In the meantime, the benefits are that the tenant pays all property taxes, all property maintenance, utilities, so there is no landlord liability. The disadvantages are that you cannot depreciate any of the improvements for tax purposes because you do not own them.

BH Properties entered into its first ground lease in 2015. Today, it holds a ground lease under the Element Times Square hotel, a DoubleTree hotel, both in New York, as well as a multi-family property in Fort Myers, Florida. .

Van Tuyle said he thinks land leases will become more common now that companies “are going to have to get creative” in how they do deals.

Maling agreed.

“I see it increasingly being an alternative transaction structure if you have landlords who are reluctant to sell their land and therefore commit to a long-term ground lease,” he said. declared.

About 20% of BH Properties’ holdings are now land leases.
“It’s good compensation for the risk,” Van Tuyle said.
He added that ground leases provide the company with a revenue stream that it can use to offset the risks associated with buying vacant buildings.

“It’s good to have these returns as obligations,” he said.

And the company is looking to continue growing over the next few years with more than $2 billion in new acquisitions.

“A target for us would be (to increase a few billion) in (assets under management) over the next few years,” Brooks said.