• Tue. Jun 21st, 2022

BH Properties sees rapid growth with creative real estate investments


BH owned 340 E. 2nd St., a 45,000 square foot office building in Little Tokyo.

BH Properties, based in Sawtelle, has grown rapidly since its founding in 1994. Today the company has approximately 10 million square feet of commercial assets and 2,100 multi-family units. Approximately 25% of the company’s multi-family building and 15% of its business interests are located 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,” which means 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 company.

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 rental and construction management.

“In our 30 years, we’ve invested heavily 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 areas 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 investors or external partners.

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

He added that it is also attractive to companies selling to BH Properties as it can bid quickly and does not have to deal with things through partners or investors.

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

“It is by leveraging our flexibility and creativity that we will see the most opportunities,” he said. “Without a tough tenure, our ability to pivot is exceptional.”

Today, the company is working on value-added deals and increasing the number of deals it enters into the types of assets that some companies are reluctant to avoid: retail, distressed debt and land leases.

Best buy

The company bets heavily on retailing and acquiring properties, even those with high vacancy rates.

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

One of the company’s recent acquisitions is a vacant 103,000 square foot big-box anchor 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 change these malls, such as converting big box stores into multiple small stores to house multiple retailers, converting stores to call centers, or even industrial conversions.

“We predicted a few years ago that retailers would struggle over the next few years due to the impact of Amazon, and the pandemic has accelerated that. We have seen shopping centers really deteriorate, ”said Van Tuyle.

Brooks added: “Covid has really infuriated all of this, including the accelerated demise of brick and mortar retail,” and BH Properties was able to profit from the trends.
Van Tuyle said that when deciding whether or not to invest in an asset, BH Properties is considering “what might be another use” for the center.

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

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

Debt in trouble

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

“We’ve done a lot of troubled debt type assets over the years. Over the past three to six years we’ve seen this rise, ”said Van Tuyle.

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

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

“The whole industry was expecting this flood of loans to go on sale like we did in 2009 and 2010, and that didn’t happen,” he said. .

Now, however, he’s starting to see more of it as the moratoriums on evictions are lifted and “lenders (don’t) want to face the foreclosure process.”

“We are seeing more loans coming into the market and believe it will be a dynamic market for 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 pick up, so the company also remains interested in these deals as a growth opportunity.

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

“The tenant or developer who was hired builds the property at their own expense and expense,” said Chris Maling, principal at 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 they are a lower rent structure that is durable for the tenant.

“The main advantage is that the improvements can be returned to you free of charge 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 owner liability. The downsides are that you can’t write off improvements for tax purposes because you don’t own them.

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

Van Tuyle said he believes land leases will become more common now, as companies “will have to be creative” in the way they close deals.

Maling agreed.

“I see that it is more and more of an alternative transaction structure if you have owners who are reluctant to sell their land and therefore to commit to a long-term land lease,” he said. he declares.

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

“It’s good to have these returns in the form of bonds,” he said.

And the company looks to continue growing over the next several years with more than $ 2 billion in new acquisitions.

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

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