LEH Lehm Bros Hldgs

Kal Zeff spent several decades building a Denver apartment empire. Now, more than six years after his death, his children are cashing out.

The Carmel Cos. portfolio, which contains more than 7,500 units across 22 properties, is under contract to be sold to about a dozen different buyers in deals expected to close by the end of the year. The listing price for the whole portfolio was more than $900 million.

The deals are being closely watched for signs of continued strength in the market for multifamily apartment buildings. For most of this year, that market has performed strongly as rents and occupancy rates have been driven higher by demand from millions of former-home owners-turned-renters.

But with worries about the economy growing, it is unclear whether values will continue rising at the same rate. This summer, the owners of another closely watched portfolio, Archstone, sought buyers for the giant apartment company but didn't get high enough bids for them to reach an accord on how to proceed.

As a result, two of the owners, Barclays PLC (BARC.LN, BCS) and Bank of America Corp. (BAC), have decided to sell their collective stakes while the third owner, Lehman Brothers Holdings Inc., has decided to hold on.

If the Zeff portfolio obtains its asking price, it will be a sign that investor appetite remains strong. It would also be one of this year's largest multifamily portfolio sales, according to brokerage Marcus & Millichap.

The Zeff sale will be "an important indicator of where the market is right now," said W. Bradford Blash, chief business officer of Crossbeam Holdings LLC, a multifamily investor that recently entered the Denver market.

The strength of the market earlier this year was one of the main reasons that Zeff's four children--Ron, Diana, Michael and Dana--decided it was a good time to sell. "Things are looking very frothy and the company was looking to sell at the peak of the market," said Gil Rudawsky, spokesman for Carmel Cos.

Ron Zeff manages the family's Denver portfolio through Carmel Partners, a separate real estate company he founded that invests in other apartment buildings nationwide. There was no debate among the four siblings about whether or not to sell, Rudawsky said.

Kalman "Kal" Zeff started Carmel Cos.--named after a well-known site near his boyhood home in Israel--in 1965 with a $5,000 loan. He developed dozens of apartment complexes in the Denver area.

The apartments are described as mostly "Class B," a designation assigned to older properties. While some have been upgraded, some don't have cutting-edge amenities like state-of-the-art gyms with personal trainers and theater-style television rooms. Built between 1977 and 2001, the properties range in size from nearly 200 units to more than 600, according to the marketing brochure. The monthly rents range from $720 to $1,870.

Brokerage CBRE, which began marketing the apartments in June, said more than 400 confidentiality agreements were signed by parties seeking more information--double the typical amount. More than 50 groups submitted bids, said Vice Chairman Tyler Anderson, part of the CB Richard Ellis team working on the sales.

Apartment vacancy rates have been falling in the Denver region, which has nearly three million residents, as they have in other parts of the country. After peaking at 8% in 2009, the national vacancy rate fell to 5.7% in the third quarter, down from 7.1% a year earlier, according to preliminary data from Marcus & Millichap. Denver's rate fell to 4.5%, from 5.7%.

Crossbeam Holdings bid for eight Zeff properties but dropped out because prices got too high, according to Blash. His firm recently acquired Summit Ridge, a 360-unit Denver apartment community similar to Zeff's offerings for approximately $31 million, or a 6.2% yield. Blash said his firm paid $86,000 per unit.

Blash predicts the Zeff portfolio will sell for well more than that, with average initial yields ranging between 4.75% and 5.75%, with an average of 5.25%. The lower the yield in a sale, the higher the price.

Blash said his firm looks for underpriced properties where it can "add value" through better management and upgrades. "The final pricing [of the Zeff portfolio] took the value out of value-add," he said.

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com;

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