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Princeton Bucks Real Estate Downturn, Goes On Multifamily Unit Buying Spree

matt-vert

While the past two years have been a time for most real estate investors to shrink their portfolios, Matt Lester has made it a time to grow.

Lester, president of Orchard Lake-based apartment management and investment firm Princeton Management, went on a buying spree last year, picking up four apartment complexes as his company has grown revenue by 50 percent since 2007.

The company’s 2009 gross revenue of $75 million was up from $60 million in 2008 and $50 million in 2007. The number of apartment units has grown from 5,000 in 2005 to 12,000 currently.

The key has been to stay disciplined when the market was overheated, as well as when it was tanking, Lester said.

“A lot of people just put their head in the sand and froze during the downturn,” he said. “Credibility has become everything, and I’ve communicated with my lenders and investors all along. We’ve tried to stay disciplined.”

Lester pointed out he has had properties that have been in trouble financially, but the key has been to come clean with investors and lenders and work through the problems.

“Anybody active in real estate got hurt,” Lester said. “If you didn’t get hurt, you weren’t active.”

But as Lester’s firm has picked up properties, it has also picked up new business as a result of the downturn. His firm has outgrown its Orchard Lake headquarters and is now searching for 20,000 square feet of office space, double what he has now.

Princeton is working on more third-party management assignments and has performed consulting services on receivership work. Each year, revenue, number of employees and number of units owned and managed have all climbed.

In the past 15 years, Lester has acquired $500 million in real estate. But he remembers when his portfolio value was $1.

That’s how he got his start as an investor in 1989. Then an attorney at Southfield-based Jaffe Raitt Heuer & Weiss, a client, sold him a vacant bank building that had a very small environmental risk attached to it.

BUYING BINGE

Matt Lester, president of Orchard Lake-based Princeton Management, has grown his company’s revenue by 50 percent since 2007 and purchased these four apartment complexes in the last year.

  • Independence Square, Clarkston, 120 units. Purchased in June 2010. Price: $2.9 million
  • Cedar Creek, Okemos, 256 units. Purchased in December 2009. Price: $4.5 million
  • Kelly Square, Roseville, 140 units. Purchased in October 2009. Price: $2.2 million
  • Lexington Square, Brighton, 120 units. Purchased in September 2009. Price: $2.3 million

Taking the risk and proving there was no contamination, Lester was later able to sell the property for $200,000—the seed money for his investment career.

In 1995, he purchased the Claymoor apartment building in Southfield, marking the beginning of his multifamily real estate portfolio. Lester still owns the building and considers it among his favorites.

The recent round of acquisitions was made possible by Lester’s reputation for paying back loans, said Dennis Bernard, president of South-field-based Bernard Financial Group, which has originated many of Lester’s loans.

“If he says he’ll deliver, he’ll deliver,” Bernard said of Lester. “If he says he’ll sell something for a certain amount, he’ll do it. If he borrows money, he pays it back.”

Bernard said that track record makes it tremendously easier to secure lending now.

“When you’re a good borrower, you can get lenders to give you a discount,” he said.

Lester has used lots of bank financing, which he later replaces with securitized loans. He also has used a pool of private-equity investors to fund acquisitions.

It is unusual to be a buyer in the current market, but there have been more opportunities in the multifamily sector, said Andrew Hayman, managing partner of Troy-based real estate investment company Hayman Co.

“Conventional real estate transactions are at a trickle,” he said. “Multifamily is the only sector with some activity.”

Hayman, whose company owns a portfolio of 15,000 apartment units and 10 million square feet of commercial space in Detroit and other Midwest cities, said the market for third-party management is becoming competitive as experienced operators like himself and Lester are hired to manage bank-owned property.

“In our case, we’ve quadrupled the number of managed properties,” Hayman said.

Lester said receivership work is growing for his company, but it remains a small part of its work.

The challenge is to continue buying in an environment of distressed properties. Lester evaluates more than 100 deals each week, typically opting to take a deep analysis on 10.

“I never thought I’d see this, but there is some real estate that is truly worthless,” he said. “There are properties out there that are truly not viable, where you wouldn’t pay one dollar for.”

And Lester knows what a $1 property can become.

By Daniel Duggan
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