UPDATED: AUGUST 29, 2016 3:05 PM — Virginia-based multifamily owner-operator GrayCo, Inc. spent $49.4 million on Aug. 25 for its second asset in the Greater Orlando market, the 288-unit M North Apartments northeast of the Mall at Millenia.
The company wanted the property so much it set up a complex reverse 1031 exchange to buy it, an order of operations they prefer in the increasingly competitive apartment acquisition market, senior vice president Robert Whittemore told GrowthSpotter.
"Because of a tax basis in the majority of our legacy portfolio deals we pursue this reverse 1031 strategy, because if we went out and sold assets first and then had to find replacements in such a competitive market, we feel we'd (lose negotiating power) and have to overpay," he said Monday.
"Orlando is one of our target markets, we like the job growth story there," Whittemore added. "We were attracted to this deal not only because it's a brand new Class A property, we really liked its proximity to the Millenia mall and relative proximity to downtown."
Set on 22 acres on the northwest corner of Millenia Boulevard and S. John Young Parkway, the $38 million M North development only opened earlier this year by Atlanta-based Pollack Shores Real Estate Group.
Anthony M. Everett, director of Central Florida for Pollack Shores, said Monday the company did not have any new asset or land targeted to reinvest proceeds of the sale locally. Pollack Shores has yet to break ground on its 206-unit The Princeton at College Park apartments.
GrayCo owns and operates 19 properties across seven states in the Southeast and Texas, including three in Florida and one in Orlando, the Courtney Chase Apartments in Hunter's Creek.
The company targets high-end apartment properties with comprehensive amenity packages for acquisition, followed by management affiliate GrayCo Properties taking over on site. Staff at M North confirmed for GrowthSpotter they had taken over management on Thursday.
This is GrayCo's first deal with Pollack Shores, brought to their attention via marketing by Walker & Dunlop, Whittemore said.
GrayCo bought the property last Thursday via three LLC affiliates formed by a 1031 intermediary, Massachusetts-based TVPX 1031 Exchange Co.
Of those three affiliates, two have ownership interests in two other properties owned by GrayCo that the company plans to sell, neither of which are in Orlando, Whittemore said.
GrayCo is still actively evaluating new acquisition opportunities in Central Florida, but does not have a fixed amount of equity it needs to place in new assets before year's end, he added.
In the less common and more complex reverse 1031, GrayCo first identifies and acquires the new property, than has exactly 45 days from closing to identify the property they will sell. They have 180 days from the date of closing to close on their sale, in order to save potentially millions in capital gains tax.