VAN NUYS, CA-A Los Angeles-based buyer has acquired 99 units of the 161-unit Sonterra Homes, a fractured condo conversion project at 15425 Sherman Way, for $6.15 million in an all-cash REO sale. Marcus & Millichap’s Ron Harris and Joseph Smolen, who brokered the sale, tell that the property generated 26 offers, all of them all-cash and all of them from private buyers, including three opportunity funds. The deal works out to an 8.75% cap rate on a pro-forma stabilized basis.

Harris and Smolen listed the property on behalf of the seller, a Chicago-based lender that foreclosed on the complex when condo sales stalled after 62 of the units had been sold. The buyer was Gidi Cohen of West Los Angeles-based Cohen & Associates.

Harris tells that the vast majority of the prospective buyers planned to operate the 99 units as apartments until the market turns to make condo sales feasible again. The $6.15 million paid for the 99 units, 41 of which are occupied, works out to approximately $62,121 per unit, compared with average sales prices of $257,000 per unit when the condos were selling and a high of $310,000 in 2007.

Harris and Smolen say that the all-cash offers reflect the state of financing in the sales of broken condo projects. “The buyers had to come in with all-cash offers” because of the difficulty of finding financing for fractured condo projects, Smolen says. Adds Harris, “Not one buyer had any financing contingency associated with their offer. There is little or no debt available for deals like this.”

The Sonterra is a nine-building complex that was originally developed in 1976 as apartments and had been operated as apartments until the previous owner acquired it in the fall of 2005 for a condo conversion of the 161 units. Sixty-two of the units were sold before the condo market stalled and the project went into foreclosure.

Harris points out that the Sonterra deal presented prospective buyers with an “opportunity for highly profitable condominium retail sales” when the market turns and, in the meanwhile, the opportunity to operate a highly amenitized property as rental units until the market turns. The complex, which has been significantly upgraded over the past five years, features a swimming pool, a spa, a fitness center, barbecues and extensively landscaped grounds with terra cotta fountains, plus more than 385 feet of frontage on Sherman Way.

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