MONTGOMERY, ALA., AND LITTLE ROCK, ARK. — Subscribing to the theory that the whole is greater than the sum of its parts, Summit Housing Partners and Bailey Properties have entered into a $1 billion merger to form BSR Trust LLC. The new entity will operate 111 multifamily communities comprised of 18,700 apartment units in 10 states in the Southeast, plus Oklahoma and Texas.
Summit Housing Partners is a seasoned owner and operator of affordable and workplace housing. Headquartered in Montgomery, Alabama, Summit Housing’s portfolio includes approximately 14,600 apartment units spread across 93 apartment communities in 10 states in the Southeast and Southwest, according to the company’s website.
The best way for the company to grow, reasoned Summit Housing’s management team, was to join forces with a regional firm that shared similar operating systems and customer philosophies. The company found its match in Bailey Properties, which owns and manages apartment communities in Little Rock, Arkansas; Shreveport, Louisiana; Houston and Longview, Texas. Based in Little Rock, the company’s portfolio includes 20 properties in three states.
Although the boards of both companies have approved the deal, it is still subject to regulatory approval and project lender consent. The deal is expected to close in the second quarter.
David Kulkarni, senior managing director HFBE Capital LP in Houston, which advised Summit Housing on the merger, says the newly formed company will provide a more efficient operating structure. For example, all 111 properties in the BSR Trust portfolio will utilize common vendor purchasing, property and risk management systems.
The merger also opens up opportunities for Summit Housing to acquire and develop market-rate and affordable housing apartments in two metros with relatively low unemployment rates — Little Rock and Shreveport. The unemployment rate for the Little Rock metropolitan area stood at 6.6 percent in March and registered 6.9 percent in Shreveport, well below the national unemployment rate of 8.2 percent in March, according to the Bureau of Labor Statistics.
BSR Trustalso has the infrastructure in place to expand its geographic footprint should such opportunities arise, Kulkarni points out.
“We believe that multifamily is a scale business,” he emphasizes. “The combined company can benefit from having its market-rate and affordable housing portfolios organized into business units.”
Scott Ray, previously president of Bailey Properties, will serve as president of the Market Rate Group at BSR Trust. Blake Brazeal, who served as president of Summit Housing, will become president of the Affordable Group. The corporate office for the Market Rate Group will be based in Little Rock, while the corporate office for the Affordable Group will be in Montgomery.
“Its business units will be served by common administrative functions such as accounting, information technology, human resources and corporate marketing,” explains Kulkarni. “Together, the companies are expected to be more profitable and have a resulting level of financial strength that surpasses what either could accomplish on their own.”
The biggest challenge to putting together a deal of this size, says Kulkarni, was to identify the merger partner that fit from a strategic standpoint. “Both Summit Housing and Bailey were profitable operating companies that were not under any financial or operating distress, so neither of them had to enter into this transaction. Both parties really have to believe that the combined company is more valuable than each of the individual companies combined.”
— Matt Valley