South Street Takes Distressed Student Housing

WEST LAFAYETTE, IN-South Street Capital, in a partnership with Campus Acquisitions, has taken ownership of a 106-bed student housing property here near Purdue University after a 15-month bankruptcy action. The two companies, both based in Chicago, purchased the note of Chauncey Square in January 2010 from Regions Bank, on the property valued at about $8.5 million.

The former owner, Fleischhauer Rentals, filed for bankruptcy soon after the venture bought the site. Matt Garrison, a partner at South Street, tells GlobeSt.com that the purchasers tried to negotiate with Fleishhauer. “The path of least resistance is to always make a deal with the debtor, but it’s not always possible,” Garrison says.

Chauncey Square had some vacancy when the note was purchased, but Garrison says his firm hired a special servicer during the bankruptcy and gained 100% occupancy at the building. The site also includes 10,000 square feet of retail and a 500-space parking garage. The venture will soon start work on a planned second phase of the property, bringing another 250 beds, Garrison  says, bringing the total value of the site to about $40 million.

He says this is the first distressed property that his firm has attempted. “We’re an aggressive buyer, and nimble,” Garrison says. “We are looking at other distressed debt, but we certainly wouldn’t go into it with any illusions – it’s not for the faint of heart. You definitely have to really understand what you’re getting into,” he says.

There’s a lot of competition for quality student housing sites. Garrison says his firm bid on two portfolios recently, with many other bidders, and the owners decided not to sell. “There’s a ton of companies out there looking, at this tale of two markets, with properties close to the campus mimicking an urban market and one-two miles away being distressed and suffering from rent deflation,” he says.

South Street mostly focuses on Midwest properties, especially the supply-constrained Purdue market. The company is also working on developing a 400-bed student housing project across from Mackey Arena in the city. “We like to stay within a reasonable car drive of Chicago, but we’ll go anywhere there’s the right opportunity,” he says.