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

|

That, however, was the intent of the buyer, Dragone Realty,which acquired the complex, Azalea Woods, as an opportunistic playto develop workforce housing, “which is our business model,” saysprincipal Vito Dragone. “Our biggest problem has been that wehaven’t been able to find many opportunities in value-addmultifamily.” That is beginning to change, however, he tellsGlobeSt.com. “People have been sitting on their properties for thepast two years, but now we are seeing more come tomarket.”

|

None, though, offered the value-add opportunity of Azalea Woods.Located at 1101 Kennebec St., the property had been seized by thespecial servicer about a year ago. “The property had fallen intodisrepair and due to some regulatory issues that came up, theprevious owners lost their business license,” explains CB RichardEllis’ Mike Muldowney. “That is when the downward spiral inoccupancy really began,” he tells GlobeSt.com. Muldowney, alongwith Bill Roohan, Andrew Boyer, Michael Rudolph, JonathanGreenberg, 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 afive-story mid-rise building containing 90 units. Over the past fewmonths, property management forced vacancy of the mid-rise so thatthe buyer could begin renovation plans immediately uponclosing.

|

Dragone says that the few renters that remained were offeredother comparably priced housing options in Prince Georges County.The company’s plan for the property is to invest $11 million in therehab. Once the renovation is complete it will begin leasing up theproperty at a $100- to $150-per-unit rent increase. A one-bedroomunit will rent for roughly $899, which Dragone says is the same asa non-renovated apartment in the area. When the company sells theproperty 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 AzaleaWoods with its 35% occupancy rates, there are clear signs of morestruggling multifamily properties coming to market--largely fromlenders that are feeling more confident in releasing the propertiesfrom their balance sheets.

|

Perhaps more tellingly, lenders are more willing tofinance these trades. Community and local banksare 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 locallybased vice president of investments at Marcus & Millichap’sReal Estate Investment Services. What buyers are doing--or plan todo--is finance the sale through these institutions and thenrefinance through the GSEs with long-term, fixed-rate debt once theproperty is stabilized, he said.

|

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.