Student Housing: Texas investors finalize their purchase of Ann Arbor’s 4 Eleven Lofts student high-rise

A Texas-based investment company with a student housing division bought 4 Eleven Lofts in downtown Ann Arbor at year-end from developer Joseph Freed & Associates.

The deal closed Dec. 30, said Brian Dinerstein, director of new business development for The Dinerstein Companies.

“We’re very excited about it,” Dinerstein said. “We’ve circled the Ann Arbor market for some time and in particular this asset. We’re very excited about the market and this opportunity.”

The building will be rebranded Sterling 4 Eleven to reflect the naming of Dinerstein’s student housing division: Sterling University Housing.

It also will go through a new marketing blitz for its ground-floor retail space. One space has been leased to Subway, which will open by April 1, and now new leasing agent Newcombe Clarke of Jones Lang Lasalle in Ann Arbor will be charged with filling the additional two spaces.

Both locations are in negotiations, Dinerstein said, with the goal of having at least one filed by summer.

“We’re going to make a big push on the retail component and get that up and running,” Dinerstein said. One storefront, he said, is likely to have a food service component with a strong local tie.

Dinerstein staff will be on-site all week, launching the transition. Building staff has been retained, but the company is investing in some new capital equipment – like office systems, furniture and weight room equipment – as well as new marketing materials.

“They’re not massive changes that will be readily apparent to the community,” Dinerstein said, but upgrades to “some of the things students touch and see every day.”

No purchase price for the property was available. 4 Eleven Lofts was assessed in 2010 at $15.1 million, making it the 11th largest taxpayer in the city, according to assessor records. At that assessment, the estimated market value is $30.2 million.

While not disclosing the purchase price, Dinerstein said the deal – done directly with Freed – was not a short sale. Freed’s lender on the property was paid in full, he added.

“I’d consider it a market transaction,” Dinerstein said. “We’re at a lower (cost) basis, but it was a market transaction.”

Freed – one of the most active downtown developers in the last decade – opened the student apartments in fall 2009. The building is located at the northeast corner of South Division and East Washington, part of the “Midtown” district defined when McKinley purchased the former TCF Bank and turned it into McKinley Towne Center.

McKinley’s 2005 deal included the property that now houses 4 Eleven Lofts at the northeast corner of Washington and Division and the vacant property at the southwest corner. That corner was sold to First Hospitality Group, which now plans to build a hotel on the property.

Meanwhile, Freed maintains ownership of two other Ann Arbor properties: Ashley Terrace, which has been caught in a dispute with lender Bank of America, and Glen Ann, a dormant development project on the edge of the U-M Medical Campus.

Dinerstein said his company is “constantly evaluating other properties in Ann Arbor,” but today that doesn’t include the other Freed properties.

Buying the Lofts 4 Eleven building for less than the construction cost puts Dinerstein in a good position as Ann Arbor’s student housing market changes. With other new construction planned in the market – such as Zaragon Place 2 and 601 Forest – the deal likely gives Dinerstein immediate cash flow towards growing equity in the building even if values and rental rates stagnate.

It also positions the company to be able to lease the retail space for the current market rate instead of locking in a deal that won’t cover the construction debt.

The new asking rate for the retail space will be $21-25 per square foot, Dinerstein said. That rate is comparable to Main Street, but less than the nearby, high-traffic South State blocks.

[annarbor.com]

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