TEMPLE HILLS, MD-Earlier this month a bona fide value addmultifamily apartment building traded – bona fide, because whilethere have been a number of such core transactions, the value-addcategory has been relatively slack. Few such opportunities havebeen coming to market, in short. That may change, however, asinterest rates continue to rise.

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Even without the changing rate environment, though, it is clearthat slowly this segment of the market has been coming back tolife. In December, The Donaldson Group of Rockville, MD and itsequity partner, New York-based Angelo, Gordon & Companyacquired a 459-unit apartment community here for $38 million in anall-cash transaction. The seller, Tarragon Corporation of New YorkCity, sold the property as part of a reorganization followingChapter 11 bankruptcy last year. Marcus & Millichap’s StaceyMilam and Victor Nolletti represented the seller in thetransaction.

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The new ownership will embark on a capital improvement programfor the property, the Heather Hill Apartment Homes, which islocated at 5837 Fisher Road in Prince George’s County. TDGExecutive Vice President Carlton Einsel estimates the company willinvest an additional $8 million. The apartment building, he tellsGlobeSt.com, has been starved for attention and now suffers fromabove-market vacancy and below-market rental rates.

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Now the company is on the prowl for other acquisitions for thefirst time in years, although it doesn’t have anything in thepipeline – or have an exact figure in mind that it wants to invest.“If the right opportunity becomes available we will buy it.” Hiscriteria are properties that are under capitalized or under managedin which the firm can create value by increasing the income andtightening the expense ratio.

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The pickings for such properties have been arguably slim, butthere is a window of opportunity opening: namely, for smallmultifamily deals whose margins are tight – and whose refinancingshave fallen through because of the recent rise in interest rates.Tim Sabet of Potomac, Md-based Ideal Realty Group, tellsGlobeSt.com that he has seen several deals in the works fallthrough because of this. “Spreads are rising, and deals that wereon the borderline are not penciling in. We haven’t heard aboutdemands for higher cap rates yet, however.”

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Ideal Realty almost lost a deal of its own, he says, butsalvaged it by offering more of a discount. “It wasn’t as much asthe difference in what the loan would have been but it was enoughto save the deal.”

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