The power of 2

After partnering on seven deals last year, Crossbeam Capital and Concierge Asset Management have decided to work together as one company.

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“In partnering on seven deals last year with Rich Devaney and the Crossbeam team, I realized a merger could give us the financial leverage and additional acquisition talent to move quicker in identifying and closing on multifamily properties that are a fit for our signature redevelopment strategy,” Concierge CEO Maxwell Drever said when the alliance was announced in February.

The merger of the two companies that created Crossbeam Holdings LLC closed at the beginning of the year, resulting in combined holdings of $630 million in real estate assets under management totaling 9,045 units in 29 apartment communities.

“We’re both workforce housing oriented,” said Drever, who founded Concierge 40 years ago. “It was such a natural thing because we had the team to turn the properties around, so it was like a marriage,” he said of the recently minted merger.

“We would have the best of both worlds,” agreed Devaney, who launched Crossbeam Capital four years ago with Brad Blash, when the two left Fannie Mae to start their own real estate business.

Crossbeam Holdings will focus on acquisition of multifamily communities throughout the U.S. for redevelopment to institutional quality. The company already has a presence in most major institutional multifamily markets from Seattle to Washington D.C. and across the Sunbelt.

Devaney recently compared the two companies to pyramids, with Crossbeam as the top pyramid, focused on a customer base of institutional investors, and the other pyramid representing Concierge, a company with decades of experience turning distressed apartment properties around.

“Crossbeam brings strong, seasoned investment management to the new venture, with expertise in acquisitions, capital markets, asset management and investor relations,” Devaney said. “We were profitable and generating consistent returns for our investors. As we began working on acquisitions together, we recognized how compatible our two organizations were.”

Drever, who will serve as chairman emeritus of Crossbeam Holdings, agreed, adding that vertically integrating all operations under the Crossbeam Holdings umbrella, instead of outsourcing them, will increase efficiency and profitability.

Prior to completing seven JV acquisitions last year, Crossbeam and Concierge had not done any business together. As Devaney and Blash were leaving Fannie Mae, Drever was working on a partnership with the GSE –a long-standing commitment to do acquisitions through the strategy that Concierge had in place, Devaney recalled.

“We knew the folks very well at Fannie Mae and we were aware of what they were trying to do together. And that’s right when Fannie went into conservatorship and the conservator essentially told Fannie they could not do that business any longer,” he said.

“So, not directly, but through our legacy business at Fannie Mae and relationships we knew out of Fannie Mae, we knew of Concierge very well,” Devaney said.

And Drever heard just as much about Devaney through his involvement with the GSE. “They made a lot of money for Fannie Mae,” said Drever. “They did a huge book of business and their full-circle deals were quite successful and that’s one of the reasons why we wanted to hook up with them,” he said, referring to the American Communities Fund that Devaney and Blash created at Fannie Mae.

Devaney, who set up that community reinvestment fund with Blash and will lead the Crossbeam Holdings management team, was national vice president for equity and mezzanine debt at Fannie Mae. Ted Kerr, chief executive of Concierge Asset Management and now president of Concierge Holdings, was once director of asset management at Drever Partners, which owned 18,000 apartment units when Drever sold it to Dallas-based Walden Residential in 1997. Blash, chief acquisitions officer of Crossbeam Capital, is chief business officer of the merged company. Before co-founding Crossbeam, he was director of equity at Fannie Mae.

The communities Crossbeam and Concierge purchased last year include the 221-unit, 17-story 415 Premier, a luxury apartment community in the upscale Chicago suburb of Evanston. The $58 million community was completed in 2008 and, when the developer could not meet the company’s $43 million debt obligation to its bank lenders because of the turmoil in the real estate markets, a notice of loan default was filed and the property was just 45 days from foreclosure when Crossbeam/Concierge stepped in and purchased the community, which enjoys views of Lake Michigan, Evanston and the Chicago skyline and formerly was known as Skyline at Evanston, for $30 million.

When the ribbon-cutting took place last fall, Devaney surprised the city’s leaders with a $9,000 contribution from Crossbeam and Concierge to match a recent grant to the Howard Street Shopping District from the Evanston Economic Development Department.

The community make-over that was completed by Concierge Management Services LLC, Concierge’s property management division, at the high-rise, where the studios, ones and twos average 833 sq. ft. and rent for $1,175 to $2,140, includes fresh paint on the building’s exterior, renovation of the nearly-new fitness center with new carpeting, mirrors and paint and redecoration of the leasing office, reception lobby and cyber cafe.

The 17th and 18th floors have been designated “penthouse levels” and the apartments on the top floor are equipped with 20-cubicfoot energy star-rated refrigerators, vanity lighting and mirrors. Almost all of the community’s studios, ones and twos feature floorto-ceiling windows and oversized balconies.

The Concierge/Crossbeam team conducted an extensive energy audit at the property prior to purchase, according to Bob Bryant, vice president of Concierge Construction. “We have since installed more efficient heating and air conditioning systems and insulated the exterior walls on all apartments to reduce energy costs for residents,” he said.

The new owners also have increased transportation options for the residents of 415 Premier, which is half a block from the CTA’s new state-of-the-art el station and just across the street from the Gateway Shopping Center. Two Zipcars are available for rent and a new taxi light has been installed that allows residents to request cab service directly to the front of the building.

The now-merged companies also bought five Texas assets in November, December and January, including the three-property, 628-unit Bent Tree apartment portfolio in the Dallas suburb of Addison from Hall Financial Group of Dallas that closed early this year. The portfolio includes three contiguous properties consisting of 83 two-story buildings designed in 1980 to appeal to the employees at numerous corporate campuses in the area.

“Our partner, Concierge, has had its eye on this Bent Tree portfolio for more than a year, and with good reason,” said Blash. “It has a Class A location minutes from The Galleria and adjacent to the Dallas North Tollway, which is a 15-minute commute to downtown Dallas.”

Some 50,000 people work in the Addison corridor for companies supporting Microsoft, GE Capital Corp., Excel Communications and MBNA Information Services. “They are our target audience,” Blash said, adding, “Addison is one of the most affluent suburbs in the Dallas area with a median income of $80,000.”

Concierge President Ted Kerr said the buyer and seller came to an agreement on the acquisition in just an hour at the beginning of this year. “We made an offer on the Bent Tree portfolio a year ago and it was rejected,” he said, explaining that brokers for the seller contacted Tom Cabibi of Altitude Real Estate Advisors, who has a longstanding relationship with Concierge, in January with the news that three other potential buyers were bidding for the portfolio that might go under contract within the next 24 hours. Kerr said Cabibi notified Drever, who has known the seller, Craig Hall, a prominent Dallas entrepreneur, for a number of years. Drever called Hall with an offer. “If I overnight you a personal check as a non-refundable deposit, will you sell us the portfolio?” he asked and Hall agreed.

Amenities at the trio of Bent Tree apartment communities include seven swimming pools with sun decks, picnic areas with barbecue grills, tennis courts and free membership to a local fitness center. As part of the portfolio’s transformation, the new owners plan to build a 2,500 sq. ft. clubhouse with a large covered deck that overlooks a pond and a brook that runs through the property.

Concierge Management Services will oversee day-to-day operations at the 248-unit Bent Tree Brook, where rents range from $610 for a 595 sq. ft. one-bedroom apartment to $1,095 for a 1,382 sq. ft. threebedroom; the 196-unit Bent Tree Oaks, where the one- to three-bedroom units that range from 699 sq. ft. to 1,356 sq. ft. rent for $675 to $1,308, and the 184-unit Bent Tree Fountains, where rents start at $530 for a 530 sq. ft. studio and top out at $1,085 for a 1,356 sq. ft. three-bedroom apartment. Occupancy at the trio was 89 percent at the beginning of the year.

Other Texas acquisitions include the 320-unit Melograno at Teravista in Round Rock near Austin, where the one- to three-bedroom units range from 676 to 1,364 sq. ft. and rent for $735 to $1,399, and the 378-unit Mira Loma in San Antonio that includes units ranging from 628 sq. ft. ones that rent for $670 to 1,364 sq. ft. three-bedroom units for $1,375.

Austin is expected to see the biggest increase in jobs in the country this year, according to Marcus & Millichap, and Dallas comes in third in the ranking of markets with the highest expected 2011 employment growth. The increase in jobs, combined with the market’s expected population growth and a reduction in construction, heralds a potential shortage of apartments there by the end of the year.

The Washington D.C. MSA, where the partnership purchased the 200-unit Reston Glen Apartments in the submarket of Reston, Va., last year, ranks second in employment growth expectations. As vacancy hits a ten-year low this year in the market, pundits predict that rent gains will strengthen, concessions will burn off and some projects postponed by the economic downturn finally will get underway. Rents at Reston Glen currently range from $1,125 for a 712 sq. ft. one-bedroom unit to $1,600 for a 1,050 sq. ft. two-bedroom.

All seven properties Concierge and Crossbeam bought in JV last year fit in the workforce housing niche that is the focus of the two companies. “Our niche,” Drever said, “is that we have the capital, ability and agility to move quickly, step in and solve problems for almost any seller or lender with a multifamily property and/or their non-performing loans.”

Crossbeam Holdings started 2011 by working to acquire three apartment communities where prospective buyers failed to meet the sellers’ year-end deadline. Looking ahead, Blash predicts the Crossbeam/ Concierge partnership will acquire “considerably more” workforce apartment communities from Washington D.C. to Seattle this year.

Authors: Maxwell Drever, Crossbeam Holdings Chairman Emeritus & Rich Devaney, Crossbeam Holdings Chairman and CEO