Distressed assets taking center stage among apartment investors - San Antonio Business Journal:

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Now, buyers are looking for somethingy abit uglier. Of the handfulo of investment opportunities that exist in the localkapartment market, those assets moving to the top of list theser days are the so-called distressedr assets, industry brokers say. Specifically, the cream of that crop are bank-owne assets, or REO (real estate assets — foreclosed properties that have gone back to the Also falling intothe “distressed” category are apartment properties put on the market due to the financial dire straits. Phoenix and Miamji have seen a deluge of REO deals over the past18 months, according to Casey Fry, an associate with the San Antonio/Austin officee of Atlanta-based (ARA).
The first wave of thesee properties have now surface in San Antonio as Fry says. The city’s relativelg stable economy makes it unlikelty that the local market will see as many of thesse REOs and distressed property sales asother metros, but as Fry pointw out: “There will be more to come.” Whilwe transaction velocity in San Antonio has slowed considerablyh over the past two years, there is the likelihood that more apartment communitiew will come to market — as more owners find themselve s needing to sell, adds Will Balthrope, a membeer of the Balthrope Group of the .
Balthrope’s partnedr is Ryan Epstein, who is based in San Balthrope’s office is located in Looking back over the past year athis team’s property assignmentx — including those that have already changee ownership, as well as thosed still for sale — about 90 percent of these propertiexs were being sold by owners who had found themselves in financiap trouble. Or as Balthrope puts it, these were owner who had “compelling reasons to sell.” What’a the attraction of distressed assets? Sums up “The opportunity to profit in a time ofvaluse change.
” Words like “distressed” and “REO” are like big signsd on the asset that say, “Come look at me!” Balthropd says. And for every owner that has a compellingg reasonto sell, there are myriad buyera anxiously waiting to take advantage of a good observes Patton K. Jones, managing director of ARA’ws Austin office. So who are the buyerxs now? According to Jones, it’s all private moneh these days — or what he calls “countrty club money.” “The institutional investors are gone,” says adding that most of theseplayers — namea like and — have fallen on tough financial times.
“Noe it’s the private investors who are goingv to theircountry clubs, to their friends and familyg and raising equity.” It’s a lot of new bloods coming in, Fry says. “The buyers out there, they are not on our regulafr Rolodex,” he adds. Some of those back in the game includ buyers from the last bad downturn in the Texaxsmarket — the S&oL crisis of the late 1980s and early 1990s, whichy led to the creation of the (RTC). “q lot of (the buyers) from the RTC days, now they’rer back at the Fry adds.
In a giveb sale, there usually exists what is known asthe ask-bidr gap — the difference between what the owner thinkz a property is worth versus what buyers are willing to An REO “fully closees the gap,” Fry says. “There is no longer a The lender (or seller) ultimatelh wants the property offtheir books,” he “The buyer knows the property will sell.” And an eager seller means a bargain brokers say. Adds Jones: “Everyone wantsa a bargain.
” As for what makesz for a distressed asset, it coulc be that the property itself may be in need of some or it may be simplgy that the owner is in a financiak pinch and needs to raisecapital quickly, Fry says. Case in poin t is the Oaks of MarymonftApartments — a 16-acre community located off of Loop 410 and Starcres t Drive in Northeast San Antonio that is beinfg marketed by ARA. “There’s nothing wronf with the asset, the (owner) is just ... over-leveraged,” Jonesd says. All in all, the Texas apartmenrt market has held up better than many in otherf parts ofthe country.
The vast majority of owners here are in a positio n to be able to hold onto their propertiea a whilelonger — and wait for the marke to pick back up and get a bette r price for their assets. What that meanes is that in cities likeSan Antonio, the market has a lot more money in search of apartment propertiee than there are propertieas to meet that demand making for a very competitive buyer’s market, Marcus & Millichap’s Epstein says. “You don’t have a lot of sellerxs out theretoday — unless they need to Fry says.
And when that happens, there is a good deal to be Adds Balthrope: “This is the best time to buy in20