Afton Properties - California

Afton Properties: Accumulation is the key

-       Dr.Kishore NK*

Within a short span of 6 years, a small time properties company became a big player in the real estate in California. The growth story is that of ‘Afton Properties’ situated in Los Angeles, California, US.

The promoters are Avi Mayer and Reuven Gradon. Afton Properties specializes in investment solutions in properties and undertakes property management services.

Afton’s business model is acquiring multi-family properties and renovate, refurbish, remake and sell the properties later until which time rental income will be earned. Focus is properties in California within major metropolitan area in infill areas. The properties should have cash-on-cash yield to which Afton will add value in terms of interior renovation, amenity addition, or improved maintenance and management.

Select deals done by Afton Properties in the recent past are as follows:

·      In Dec 2018, Afton purchased from Blackstone a 288-unit apartment complex in Riverside for $63 million and another in San Bernardino for $111 million. Afton availed $122 million loan as 70% of the purchase price for purchasing the properties.

·      In March 2019, Afton sold 98-unit El Sereno apartments situated in Los Angeles for $18.6 million to Laramar Group.

·      In August 2019, Afton paid $54 million for 178 unit Canyon Crest Views Apartments housing complex in Inland Empire.

·      In Sep 2019, Afton paid $132 million to acquire an 800-unit Sunset Ridge Apartments which is an affordable housing complex in Lancaster.

·       In Q4 of 2020, Blackstone sold Cordova Park Apartment Homes and Sienna Heights Apartment Homes. to Afton Properties for $145.4 million.

·      In August 2021, Afton acquired ‘The Dylan’, a 208 units community in Oceanside of California for $74.1 million, 70% of which is supported by $52 million loan. The previous owner undertook huge refurbishment of about 50% interiors before Afton purchased the property. Thus the property holds a value gain up to 25% right away.

Afton funds its business by taking over the existing home loans, mobilizing loans from banks and private mortgage lenders, and transaction specific private equity investments, etc.

Afton also received some silent funding from Charlie Munger, the Vice Chairman of Berkshire Hathaway. Reuven Gradon convinced Charlie Munger about the business proposition and obtained funding support to clinch certain valuable deals.

Afton Properties is still in S Corp format. Being a small business, Afton received support under the Paycheck Protection Program of CARES Act formulated by US to support the covid affected businesses.

Aftons’s strategy is to take advantage of the sub-urban apartments, garden-style buildings, independent multifamily buildings, etc., which had far lower market value and less demand due to the ongoing political turmoil then, interest rate uncertainty, high job vacancy rates, etc. The properties could be of A, B, or C class and pricing could vary from $4 million to $250 million and above.

Afton had purchased several properties in California much before the Pandemic and the values of these appreciated much higher during the pandemic and thereafter even much higher. The present market value of the real estate is estimated to be $1.2 billion. Accounting wise, the revenues may not be higher since the capital appreciation is notional until the properties are sold and capital gains are realized. However, as the property prices are appreciating and the pipeline deal flow, Afton is expected to command much higher valuation. During the last two years, success story of Afton Properties is widely covered across the National Media of US and also in select global media related to real estate news.

Down here in India, many may have tried to test their luck with similar models but have not succeeded worth carrying this size banner story.

Anyway, it is clear that value investing and accumulation of properties is the key but the business cycles of real estate market can be weird than stock market and such high debt funded transactions have high risk element as well.

Dr.Kishore NK is a Corporate Finance Professional and an Economist. He is the CFO of a Real Estate & Infra Group head quartered at Hyderabad, India. The views expressed are his own but do not reflect those of his organization or this publishing house.