Oak Purchases First Distressed Apts.

FOREST PARK, OH-Oak Residential Partners LLC has purchased its first property, a 212-unit apartment complex here, for about $7.7 million from a special servicer. Mills Run Apartments, at 11755 Norbourne, is 90% occupied.

All State Management purchased the complex in August 2004 for $10.4 million. However, the company overleveraged the property, says Rick Wise, an Oak managing principal. His firm purchased the site through a short sale with LNR, with financing in the form of a 10-year fixed rate Freddie Mac loan arranged by Troy Kennedy with CB Richard Ellis Capital Markets. “We bought at above an 8% cap rate, with new debt below 5%. This property just throws off significant cash flow,” Wise says.

Mills Run was built in 1989, and consists of 13 two- and three-story buildings, with an average unit size of 762 square feet. Amenities at the property include indoor and outdoor swimming pools, a fitness facility, carports and garages, fireplaces, washer and dryer connections and walk-out patios and balconies. Rents range from $579 to $809 per month.

Wise says the property is in good shape, but that his firm will spend about $500,000 on improvements. “It was a distressed owner, not a distressed property. There’s a significant amount of deferred maintenance,” he says.

Chicago-based Oak Residential was formed in 2009 by Wise, formerly with Waterton Associates LLC, and Adam Levine and Michael Lirtzman, principals  of the Oak Realty Group. Wise says the firm was formed to look for high-quality apartment assets that would offer above-average returns, in the large markets and also in the Midwest. “We believed at the time that we would find more distressed opportunities in the Midwest, and that turned out to be true,” Wise tells GlobeSt.com.

However, he says there just hasn’t been many quality, distressed assets available anywhere. “If you’re out looking for distressed, opportunistic deals, that’s probably the biggest disappointment. There’s lots of class C and D assets out there. Local buyers, they can handle those deals, they can give a site like that 24-hours-a-day attention,” Wise says.

Oak Residential has a second asset under contract that is scheduled to close this month. Wise says he can’t comment on the property, other than to say it’s in Indianapolis.