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.

[IMGCAP(2)]The 40-unit property in North Hollywood that sold was the Otsego Villas at 11109 Otsego St., according to Melinda Russell of Hendricks & Partners, the broker on the deal. Los Angeles-based IPX bought the complex, which is in the NoHo Arts District, from Otsego Villas LLC of Beverly Hills for $7.7 million.

Russell, who represented both the buyer and the seller, notes that the buyer was in a 1031 exchange and assumed Freddie Mac financing that "averted the risk of new loans in today's difficult lender environment." She says the complex has value-add potential through management and upgrades. The transaction closed at a 5.75% cap rate, based on "realistic rents to underwrite" the deal, Russell says.

[IMGCAP(3)]The two Valley Glen deals were brokered by Rick Raymundo of the Downtown L.A. office of Marcus & Millichap and involved two buildings on Fulton Avenue that sold for $5.2 million each. One was a 53-unit complex at 6125 Fulton that Franklin Management bought from 6125 Fulton Apartments LLC. Raymundo says that, with cooperation from the seller, the buyer was able to secure financing with a second lender when his original bank curtailed its proposed loan-to-value amount. Raymundo says the deal "serves as a prime example of how optimal financing is still available in this tightening credit environment."

Raymundo represented the buyer, with Chris Malcolm of Coldwell Banker representing the seller.

The other property was a 40 unit complex at 6888 Fulton Ave. Raymundo represented the buyer, a private investor.