Northland Investment Corp. in Newton, MA, has formed a new $2 billion multifamily joint venture with Tarragon Corp. The joint venture will specialize in acquiring and developing commercial residential properties.
The joint venture with Tarragon, a mixed-use developer with a focus on for-rent and for-sale multifamily housing, adds 7,433 multifamily units to Northland's portfolio, bringing its total number of multifamily units to more than 21,000.
The deal increases Northland's multifamily portfolio by approximately 50%, launching it into the top 50 multifamily owners in the country.
The joint venture will own substantially all of the 21,000 rental apartment homes controlled by the two firms. The 83 properties are located nationwide, with concentrations in Florida, Connecticut, Massachusetts, North Carolina, Texas, Tennessee and Arizona. Based on the parties' joint assessment of their equity in the properties contributed, Tarragon and its affiliate, Ansonia, will initially own 22.4% of each joint venture and Northland 77.6%.
The joint ventures will also purchase Bermuda Island in Naples, FL, and Northgate in Waverly, RI, and, when completed later this year, The Vintage at the Grove in Manchester, CT and Aldridge at Gateway in Murfreesboro, TN from Tarragon for a total of $166 million.
"This joint venture increases our access to capital, strengthens our position in several key markets, including Florida and Connecticut, and will provide significant growth and value add opportunities," said Steven P. Rosenthal, CEO of Northland Investment.
Tarragon and Northland will also form a joint venture to provide property, asset and construction management services to their properties and to third parties. This entity will employ about 600 people, with headquarters in Massachusetts and satellite offices in Connecticut, Texas and Florida. The management services company will be owned in the same proportions as the real estate joint ventures.
Northland has also agreed to provide Tarragon with a $50 million loan commitment. If drawn by Tarragon, the loan would be a senior secured two-year loan. The proceeds of the loan, in conjunction with additional cash provided by Tarragon, would be used to purchase certain of Tarragon's subordinated debt at a discount. Tarragon's minority interest in the joint venture will secure the loan.
"The four property sales will generate $16 million in cash and increase our equity in the joint venture by $4.4 million. The Vintage at the Grove and Aldridge at Gateway will be the second and third newly built rental properties sold by Tarragon this year as part of its merchant building initiative. Total merchant building sales are expected to reach $220 million in 2008.
"The formation of the residential joint ventures and property sales, together, are expected to reduce Tarragon's consolidated debt by about $600 million," said William S. Friedman, Tarragon chairman and CEO. "Tarragon, in addition to its investment in the joint ventures, expects to continue to develop new mixed-use or rental properties for sale or for contribution to the real estate joint venture. We also anticipate continuing to liquidate our condominium inventory and, as we free up capital, investing in other opportunistic real estate ventures."