DJA Managing Distressed RP Portfolio

DJA and Vestis Group are managing and upgrading 23 former Right Place multifamily assets throughout the metro area. Though Right Place also acquired in Houston, DJA president and CEO Dick James says he decided not to touch those. "We determined it was a lost cause," James tells GlobeSt.com. "We didn't want to get involved with that."

James, who already owns and operates more than 3500 units throughout the sunbelt under his own company name, says he'd gotten involved with the Right Place portfolio because he was interested in expanding a third-party management business. He was hopeful of receiving two or three Right Place properties to manage when he learned the company was closing up shop. "I ended up getting darn-near all of them," he says.

For years, Right Place Properties, led by co-founders Rob Porter and Earl Ricker, had a reputation as a reliable company. Porter and Ricker bought low-rent apartment buildings, renovated them with funds from a pool of private investors, then re-sold the units as condominiums. Porter and Ricker did this at a rate of one asset a year, until the mid-2000s, when the company stepped up its investment plan. According to an article in the Arizona Republic, the company was acquiring as many as two apartment buildings a month by 2008.

Then things fell apart. In late 2008, Right Place stopped monthly investor payments and laid off most of its sales organization, Red Door Group.

Meanwhile, DJA stepped in to manage almost everything about a year ago. But the portfolio was a mess. "Only a couple were in decent shape, a lot had deferred maintenance issues," James says. The tenants in most of the assets weren't all that desirable, either.

Adding to the problem was the lack of information about the portfolio. "They'd taken everything from the office, too; all the financial information and files," James remarks. As a result, he adds, there were no records to provide any kind of background about the properties' operations.

During the past year, James and Vestis have upgraded the assets so they can provide some cash flow for investors who have been left holding the bag. "What I told them is their future value is as apartments and not condos," James explains. "The apartment rental market will come back much more quickly then the condo market."

Les Litwin with Vestis Group says some of the more affluent investors have pooled some funds to get the complexes up to par, but it's been slow going. There are still units off-line, he remarks, but things are better today than a year ago. "Dick has made most of these improvements with cash from rents and out of his own pocket," he adds. "This has been laborious."

Litwin and colleague Natan Jacobs, both of whom worked with Right Place Properties through its Red Door Group, don't think Porter or Ricker were crooks, as much as they became greedy during the mid-2000s, when real estate values skyrocketed.

Jacobs points out that Right Place's business plan worked for years, until the owners began borrowing and buying more than they could handle. He adds Right Place isn't the only company that has run into problems.

"Anyone who bought during the boom and became overleveraged had no choice but to give up," Jacobs says. "If Right Place had just stuck to a couple of properties a year, then they would have been okay. But their model of over borrowing and buying too much ended up biting them. The values just were not there to support it."