Multifamily Closings Include Distressed Debt

The distressed debt deal was executed by Lion Real Estate Group, a privately held real estate investment firm that was formed in early 2008 to focus on value-add and opportunistic multifamily properties in Los Angeles. It completed an all-cash acquisition of two loans on the property at 920 N. Wilcox in an off-market deal.

Lion bought the senior and junior loans on the property for slightly more than $4 million, representing just over half of the original purchase price of $7.25 million when the complex last sold in 2007. The previous owner had started a condo conversion of the property and had invested $1 million in the conversion. The complex comprises 26 non-rent controlled units, including one studio and 25 two bedroom/ two bathroom units.

Jeff Weller, co-principal of Lion, comments that in today's marketplace, "There are more advantages to finding properties through banks, particularly in instances where the value of the loan is higher than the value of the property itself." Based on recent sales in this submarket, which show comparable assets trading at north of $275 per square foot, "There was clearly significant value in a deal that allowed us to take title of the property at less than $140 per square foot," Weller says.

While they acknowledge inherent risks associated with loan acquisitions, Weller and his partner, Mory Barak, plan to invest in more nonperforming multifamily debt in 2009 as banks look to remove these loans from their books. In the 920 Wilcox transaction, Lion was able to foreclose on the asset and take over title, with a long-term plan to conduct a full rehab and lease the property as apartments, eventually selling at a profit, Barak explains. As Lion moves forward with its distressed loan acquisition strategy, it anticipates that even in instances where loans are cured, it will have still acquired the loan at a deep discount and will make a profit upon the eventual sale of the property, Barak adds.