Wahiawa apartments
sell in tight marketThe buyer plans to make
extensive renovations
California-based The Bascom Group LLC has purchased the 106-unit Palms of Kilani rental apartment building in Wahiawa for $9.1 million from Fowler & Flanagan Garden Club Associates, another California company.
The transaction, which closed yesterday, is Bascom's second buy in Hawaii following its October purchase of the 406-unit low-rise Sunset Villa Apartments in Waipahu for $32.2 million.
Demand for rentals in Honolulu has been strong and will continue to be, given the rental shortage, past increases in rental rates, constraints on new construction and Hawaii's rebounding economy, said Andrew Newton, Bascom's acquisitions director.
The previous owner paid $3.7 million for the Palms of Kilani in December 2002.
Bascom, which owns other multi-family buildings throughout Southern California, typically renovates properties and holds onto them for three to four years before re-selling them, Newton said.
Bascom's research shows that Oahu remains one of the most undersupplied rental markets in the country with demand outweighing new deliveries, Newton said.
Research by the state Department of Business, Economic Development and Tourism supports that view. It found only a 6.7 percent growth in rental units statewide in the last decade. The department's director, Ted Liu, said earlier this week DBEDT found Hawaii had a shortage of just under 30,000 housing units in 2003, with the severest shortage in low income categories.
Moreover, DBEDT found, there is no projected future production of rental housing, except for some very limited production of rentals for subsidized elderly housing. With a booming real estate market, the problem has been exacerbated in the last couple years as more homes and condominiums are pulled from the rental market and sold.
Bascom plans to renovate the four-story Wahiawa complex, which occupies 3.1 acres and was built in 1973. The apartments have two to four bedrooms.
After renovations are complete, rents will increase by an average of 13 percent, to about $1,150 per unit on a weighted average, from $1,000, Newton said.
Newton said Bascom is actively seeking other Hawaii residential properties.
"We are looking at other islands as well. We like the overall story, the economy and the market. However, there are not a lot of larger institutional buildings available but we'd like to buy more," he said.
In Hawaii, Bascom's target market is working class families, Newton said.
"We'll go ahead and complete a renovation, reposition the asset, bring in new property managers and bring it up to where it should be relative to the market," he said.
In the case of the Wahiawa property, the company plans to build a separate leasing office, install a swimming pool and a children's playground. They also intend to spend about $20,000 per unit on upgrades.
"That's pretty significant," he said.