Lane widens the market

The value-added playing field just got a little more crowded with the addition of another player --Lane Company's recently created Lane Strategic Investments.

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Lane has hired a seasoned veteran to head up the new subsidiary that will focus on acquisitions, while expanding the Atlanta-based company’s footprint into new markets.

“Ideally, we’d like to start focusing on markets where Lane already has a presence either through development or their third-party management company. Outside of that, I’d like to expand to adjacent markets, something that doesn’t take us too far out of our comfort zone,” said Phillip Pitney, who joined the company in mid-February as Lane Strategic Investments’ new president.

Pitney’s initial focus will be on the Southeast and the Mid-Atlantic, followed by Texas, markets where Lane owns and/or manages a total of around 30,000 apartment units.

“Then we’d like to go to the Southwest and eventually both coastal markets,” said Pitney, who came to Lane from Fairfield Residential, where he spent four-and-one-half years building a team to implement a value-add strategy for the merchant builder. During his tenure as VP of East Coast acquisitions and redevelopment for Fairfield in Bethesda, Md., Pitney and his team acquired more than $2.2 billion of apartments and completed $280 million of redevelopment construction. He also was responsible for maintaining all equity and debt relationships, making him a near-perfect fit to spearhead Lane’s new acquisition initiative.

Lane has long been known as a development and management company, buying only two or three apartment communities a year. That image began to change in late 2005, when Lane and Morgan Stanley Real Estate, on behalf of the Florida State Pension Fund, entered into a $150 million joint venture to invest in value-add apartment acquisitions and new development in major metros throughout the Southeast.

“We have our marching orders to spend money from Morgan Stanley. The only trouble is getting people,” Lane CEO Bill Donges said last fall, while he was beefing up both his acquisitions and development teams in its markets from Texas to Washington, D.C., going from one development manager to nine in 2006, while hiring regional acquisitions team members, as well.

But it took a while to find the right person to take the helm of the new acquisitions subsidiary.

“Lane Strategic Investments will play an important role in our strategic growth. Phil has the right experience to lead us into this next phase,” Donges said. That experience dates back to the early 1990s, when Pitney worked for Security Capital Pacific Trust, which eventually became Archstone-Smith. He spent a couple of years with Simpson Housing before joining BRE in 1997, which he left in 2001, when he was hired away by Fairfield.

Pitney is equally enthusiastic about what Lane has to offer him. “It’s an opportunity at this point in my career for me to lead this group, as well as be in on the ground floor of creating it. There’s a lot of people out there trying to go out and buy value-add assets, but they really don’t have a platform to complete that. In Lane’s case, they already have that platform right now. They’re a management company, a construction company, a development services company. They have all of the resources available to execute a value-add business plan,” he said.

After barely a week on the job, Pitney said he doesn’t want to rush into acquisitions, just yet. “When you’re trying to establish an acquisitions format for an existing company, you want to make sure that you don’t go out and make a lot of promises you can’t keep. I certainly want to understand all of the execution capabilities I have with Lane with their existing platform before I go out and make too many promises. I’m a little cautious in that respect,” he said.

He does hope to purchase 10 to 12 apartment deals this year. His ideal acquisition mix would be around two-thirds value-add and one- third core or something that doesn’t necessarily fit into either one of those categories. “One example that I like is recovering markets,
which is not necessarily a value-add play. It’s just trying to time the bottom of a market that’s recovering,” said Pitney.

For some of those deals, he will tap into the State of Florida/Lane Real Estate Fund, which already has one buy under its belt that occurred shortly before Pitney was hired.

Lane Company Acquisitions Manager Adam Brown oversaw the $27 million purchase of the 309-unit, 22-year-old Alexander Place Apartments in Charlotte, N.C., from INVESCO in January.

Although Lane manages nearly 3,000 units there, Alexander Place is the company’s first buy in the Queen City. Lane contributed 10 percent of the equity to the deal and Lane Management LLC will implement a new operations strategy at the community while the company’s construction subsidiary spends 15 to 18 months and around $12,500 per unit on interior and exterior renovations at the property that was 97 percent occupied when the deal closed.

Brown said the upside is that the vintage, low-density garden-style asset is located in the affluent South Park sub-market on 37 acres graced by mature landscaping close to a couple of high-end retail centers. The facelift will bring the B- asset up to a B+ in an A location, he predicted.

For the past couple of years Lane has taken advantage of the sellers’ market to unload more than 5,000 units. Lane currently owns around 4,500 units in its various markets. In order to switch from being a net seller to an aggressive buyer, Pitney believes the company will need more than just the fund. “Ideally, for us to be as successful as I want us to be in the acquisitions role, we need multiple equity partners with different investment parameters, yield requirements, markets and product types, so we can do the type of volume that we want to do. We need to expand our stable of equity partners and we’re currently talking to a few folks about doing just that.”