Major Piece of MSI Portfolio Closes at $239M

PHOENIX—A multi-region team effort went into the marketing of the MSI National Apartment Portfolio, with the $239-million sale having just closed on a major portion of the 5,380-unit portfolio, GlobeSt.com has learned exclusively. Locally based Berkadia was engaged to sell the portfolio in September 2013 by its court-appointed receiver, as GlobeSt.com first reported last year. It brought in about 85 letters of intent from qualified purchasers, although not all wanted to buy the MSI portfolio lock, stock and barrel.

For the buyer, Atlanta-based Cortland Partners, the decision to buy the entire portfolio was driven partly by its diversity, geographic and otherwise, and partly by the quality of some of the assets, particularly those in Texas and Ohio, Berkadia SVP George Deuillet tells GlobeSt.com. The Columbus, OH portion represented the single largest concentration in the portfolio with 2,146 units across eight properties; the sale of the eight those assets, which Deuillet describes as “all in the B-plus range with pretty significant upside,” has closed at more than $111 million. The Texas assets spanned the Dallas, Houston and San Antonio markets, with 1,586 units across seven properties that comprised $99.4 million of the total.

“What Cortland felt was that in order to get control of those, they needed to take the smaller ones in Iowa and Kansas that were sort of lumped in,” Deuillet says. While Cortland plans to spin off some of those smaller communities, the deal will do much to broaden its reach outside its Southeast home base.

From the standpoint of the seller, Cortland's experience with managing apartment assets and the strength of its balance sheet were deciding factors. Furthermore, says Deuillet, the Berkadia team convinced receiver John A. Beckstead of law firm Holland & Hart LLP to sell the portfolio in its entirety, although the properties had been marketed as either a complete portfolio, three sub-portfolios or individual assets. “We told the receivers, 'You can't cherry-pick. You don't want to be stuck with the four 38-unit assets in Iowa.' ”

Brent Long, president of Berkadia Investment Sales, says the portfolio is “certainly one of the largest listed and sold transactions across such a diverse array of markets.” It came to market after the SEC filed a civil suit against Utah-based Management Solutions Inc. and seized control of the portfolio. A federal judge at US District Court in Utah appointed Beckstead to dispose of the properties in 2011, and Deuillet says navigating the court process took the receiver two years before he selected Berkadia to market the assets.

Along with the 20 properties that have now sold to Cortland—located across Louisiana, Kansas, Oklahoma and Tennessee, in addition to the Texas and Ohio assets—it includes another eight properties totaling 1,230 units. The sale of this smaller portion of the portfolio, located mainly in the South and Midwest, is expected to close by the end of the year for just under $100 million.

Deuillet and VP Forrest Bass, both based in Berkadia's Austin, TX office, led a group of investment advisors from eleven offices to market the properties nationally. As GlobeSt.com reported a year ago, the company landed the marketing assignment on the basis of its specialization in apartment investments, national scope and integrated capital markets platform.