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SAN DIEGO—Multiple-unit purchases within an existing community may be bargains compared to replacement costs, but they can be much more difficult to finance, locally based Pathfinder Partners' senior managing director Lorne Polger tells GlobeSt.com. The firm recently marked its first Las Vegas acquisition by purchasing 64 units for $18.1 million in Sky Las Vegas, a trophy high-rise building on the Las Vegas strip, picking up all the remaining units that never sold when the 409-unit, 42-story luxury-condominium tower opened in 2007.

According to Polger, his company purchased the units from the original developer, Sky Las Vegas Condominiums LLC, who had previously sold 345 units and was operating the remaining unsold units as rentals. Polger says that while bulk purchases like this are in hot demand, there are some challenges inherent in these types of deals. We spoke with him exclusively about the pros and cons of multiple-unit purchases within an existing community, as well as where such transactions are common and why his company is keen on them.

GlobeSt.com: What are pros/cons in bulk purchases like this? 

Polger: The pros are that you are typically buying well below replacement cost, as well as below current retail values. We like to think we are making money on these buys, which is much harder to do in the current real estate investment market than it was a few years ago. The cons are that these deals are much more difficult to finance. Another challenge is navigating the homeowners associations (HOAs). Given our expertise in these areas—and the debt relationships we have established over the years—we were able to minimize those negatives on this latest transaction and on other similar ones.

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GlobeSt.com: Is this a common—or increasingly common—multifamily-type transaction? If more common, why? If less common, why? 

Polger: It's becoming more common. A significant percentage of condominiums—in particular condo-conversion projects—that got off the ground between 2005 and 2007 have failed. Some units were sold. However, the lenders frequently took them back and held them as rentals. Occasionally, the developer was able to hang on by the skin of his teeth. There was no market for these projects for many years—they were not financeable and there were no prospects for selling individual units because the projects lost their FHA approvals and the HOAs were underfunded.

In some projects, these circumstances have changed, and in others, things may change in the future —that's why these types of deals have become increasingly attractive to us. Finally, these transactions are typically too small for the large institutional investors to play in, so we are encountering much less competition in this arena.

GlobeSt.com: Any specific hurdles/challenges to overcome in transactions like this?  

Polger: These are hairy deals. You have to dig deep into the dynamics of the HOA that rules the common areas and, in some cases, other parts of the project. Also, you must understand the HOA's finances, the propensity for special assessments and any construction defects—and resulting litigation. Finally, you must have a solid grasp of the somewhat unique and challenging markets for rentals and sales—often you have minimal or no control over a leasing or sales office and may be significantly limited in the types of marketing activities you can create.

GlobeSt.com: How often do these types of deals become available? 

We have seen a significant uptick in availability over the last six to 12 months.

GlobeSt.com: Are there any geographic locations where they are especially common/appealing?

There were a large number of condo-conversion projects undertaken in Southern California, Phoenix and Las Vegas at the height of the market. Since we have been researching and investing in those markets for many years, those are the locations we are primarily concentrating on for this product. 

GlobeSt.com: Why/how was Pathfinder successful in this latest deal?

Polger: Our success will ultimately be measured when we exit the project, but we purchased it at a highly discounted price to its current value, which is something we endeavor to do with each investment.