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Avatar's New Playbook

Following a chief executive change, Avatar Holdings makes an aggressive portfolio play.

On Oct. 25, Coral Gables, Fla.–based Avatar Holdings, a small, publicly traded developer and home builder, announced the acquisition of a portfolio of real estate assets in Arizona and Florida, including Joseph Carl Homes, a Phoenix-based private home builder and the developer of the CantaMia community, for approximately $62 million in cash, stock, and notes, plus an earn-out of up to $8 million.

The purchase was made from JEN Partners, a New York City–based real estate private equity fund.

The deal included not only Canta-Mia, a 1,781-unit active adult community located in the Estrella master planned community in Goodyear, Ariz., but also Sharpe properties in Florida, comprising 445 acres located in Orange County.

The price tag broke down into $30 million in cash, $20 million in restricted common stock subject to a two-year lockup agreement, and $12 million of notes divided equally into two $6 million notes, one with a one-year maturity and the second with a two-year maturity. The agreement also provided for up to $8 million in common stock, subject to the achievement of certain agreed-upon metrics related to the CantaMia project by Dec. 31, 2014.

The properties significantly expand Avatar's existing footprint while strengthening the company's management bench. The deal brings several new executives to the company, including Joseph Carl Mulac III, founder of Joseph Carl Homes and a former senior executive with Tousa, who will join Avatar as EVP and president of Avatar Properties. Also, as part of the agreement, two managing directors from JEN Partners, Reuben Leibowitz and Allen Anderson, will join the Avatar board of directors.

Through this transaction, JEN Partners will become a significant shareholder of Avatar.

Jon M. Donnell, who is set to take over as Avatar's president and CEO on Nov. 15, said, “This is an important transaction for Avatar. Many of the properties we have just acquired from JEN are in the sweet spot of our strategy to build premium active adult communities and are consistent with our stated goal to capitalize on current market opportunities.”

Donnell, a real estate veteran with experience as a co-founder of The Monticello Group and a former executive with Dominion Homes and Del Webb Corp., will replace Gerald D. Kelfer, who announced his retirement in October. Kelfer will remain vice chairman of Avatar's board.

—Bill Gloede and Teresa Burney