OXON HILL, MD-A rare value-add multifamily project traded here for $9.5 million. The price may seem low--after all the property is a 305-unit community. The catch is that occupancy was 35% when the trade was being negotiated. Today it is effectively empty. 

That, however, was the intent of the buyer, Dragone Realty, which acquired the complex, Azalea Woods, as an opportunistic play to develop workforce housing, “which is our business model,” says principal Vito Dragone. “Our biggest problem has been that we haven’t been able to find many opportunities in value-add multifamily.” That is beginning to change, however, he tells GlobeSt.com. “People have been sitting on their properties for the past two years, but now we are seeing more come to market.” 

None, though, offered the value-add opportunity of Azalea Woods. Located at 1101 Kennebec St., the property had been seized by the special servicer about a year ago. “The property had fallen into disrepair and due to some regulatory issues that came up, the previous owners lost their business license,” explains CB Richard Ellis’ Mike Muldowney. “That is when the downward spiral in occupancy really began,” he tells GlobeSt.com. Muldowney, along with Bill Roohan, Andrew Boyer, Michael Rudolph, Jonathan Greenberg, Brian Margerum, Martha Hastings and Trish Bonebrake, brokered the transaction. 

Built circa 1963, the asset consists of two different phases: three-story garden style buildings containing 215 units and a five-story mid-rise building containing 90 units. Over the past few months, property management forced vacancy of the mid-rise so that the buyer could begin renovation plans immediately upon closing.

Dragone says that the few renters that remained were offered other comparably priced housing options in Prince Georges County. The company’s plan for the property is to invest $11 million in the rehab. Once the renovation is complete it will begin leasing up the property at a $100- to $150-per-unit rent increase. A one-bedroom unit will rent for roughly $899, which Dragone says is the same as a non-renovated apartment in the area. When the company sells the property in five years, it expects to price it at $90,000 to $100,000 per unit, he says. 

While few value-add opportunities will be as stark as Azalea Woods with its 35% occupancy rates, there are clear signs of more struggling multifamily properties coming to market--largely from lenders that are feeling more confident in releasing the properties from their balance sheets. 

Perhaps more tellingly, lenders are more willing to finance these trades. Community and local banks are the main financial institutions funding these transactions, along with JP Morgan Chase, which recently re-entered the market, according to an earlier interview with Ari Firoozabadi, the locally based vice president of investments at Marcus & Millichap’s Real Estate Investment Services. What buyers are doing--or plan to do--is finance the sale through these institutions and then refinance through the GSEs with long-term, fixed-rate debt once the property is stabilized, he said.