ALCO thriving on renovation - Multifamily reinvestment strategy pays off

Published on: October 7, 2011

Christopher Sheffield, Memphis Business Journal

Multifamily developer and management firm ALCO Management Inc. will unveil its latest multimillion-dollar renovation project later this month at Saints Court Apartments in North Memphis.

The company continues to execute on its plan to buy older properties and reinvest in them rather than launch new developments, says president and COO Robert Hyde.

The $7.1 million project at Saints Court is the latest in more than $50 million in total development ALCO has undertaken since 2005 on projects throughout Tennessee and Kentucky. The company acquired Saints Court in 2010 for $2.6 million and spent another $4.5 million renovating the 63-year-old property at 994 North Watkins, according to Hyde.

Two other acquisition/rehab deals in the Memphis area valued at almost $15 million are scheduled to happen in 2012, he says. The lion's share of that investment, $10.4 million, will be in rehab costs alone, Hyde says.

ALCO has been in the acquisition and renovation mode for the last decade. With the current economic environment, company leaders says that strategy isn't likely to change anytime soon.

The last project it built was The Registry at Wolfchase Apartments, a Class A property opened in 2000. The company manages a total of 6,000 units in 60 properties in an eight-state area.

Multifamily, whether privately funded Class A projects or government subsidized Class Band C projects, which is the majority of ALCO's portfolio, have been one of the bright spots in residential construction with occupancies rising and valuations increasing.

McGraw-Hill Analytics earlier this year projected multifamily new construction would increase to $4.2 billion in 2011 from $3.18 billion last year.

While McGraw-Hill's numbers don't factor in the type of acquisitions and redevelopments ALCO is currently engaged in, it does speak to the strength of  the industry and, as importantly, a real estate market where financing is flowing.

"The funds are good for multifamily," says ALCO executive vice president and CAO Michael Johnson.

Funds can come from federal, state and local sources as well as some private funders, Johnson says.

ALCO also has developed a strong expertise financing and managing government-assisted housing, an area of the industry vastly different from Memphis based multifamily firms MAA or Fogelman Management Group.

Jon Van Hoozer, senior vice president and a commercial lender at Financial Federal Savings Bank, has worked with ALCO on a number of deals, including financing for the Saints Court project.

"They've got a wealth of knowledge on this market and are very experienced with subsidized housing and that's their niche," he says.

The market for affordable or government-assisted housing, in the city and region is strong, Van Hoozer says. However, to navigate the process and obtain funding, companies have to show they can operate effectively in that environment, Van Hoozer adds.

One challenge has been that because multifamily is thriving, it's attracted so much attention that traditional funding sources like HUD are backed up on requests, which is creating opportunities for sources like bank financing.

Because the wait time for approval can be 12-18 months, it makes more sense to buy an older asset "and rebuild it from the studs."

"Four years ago it was easier to get a HUD loan," he says. "Now you can get stuck in line with a lot of unseasoned developers."