La Mesa Village was bought in 2004 by SRS Properties Inc. Meanwhile, a three-asset portfolio is currently on notice to foreclose. The 272-unit Casa Carranza Apartments in Mesa and the 486-unit Northern Point Apartments and 215-unit Paseo Del Sol Apartments, both in Phoenix, are on notice for foreclosure. The portfolio was bought in 2006 by Teresi Investments.

Alon Shnitzer, associate vice president, investments with Marcus & Millichap Real Estate Services says the main reasons why many of these assets are ending up with lender ownership are because of overleveraging and increasing vacancy. "All of these properties are in similar situations. They were financed with non-recourse notes, and are now overleveraged because the cash flow isn't supporting them any more," says Shnitzer, who has no involvement with the troubled assets, but is familiar with them.

Shnitzer, who is working with lenders on marketing distressed property in the metro area, tells GlobeSt.com that the increase in foreclosure activity during the next several months will involve mostly class B and class C apartment complexes. "I'm not seeing a lot of A product coming just yet," he points out. "There's one A product coming here within the next 30 to 90 days."

If there is any bright side to the current market situation, it's that sales velocity should pick up soon. Shnitzer says there has been huge buyer demand for the foreclosed properties. The buyer pool consists of local investors with plenty of cash and familiarity with the Phoenix market, as well as out-of-state parties that haven't been in the market for awhile because of the markets overvaluation during the mid-2000s. Shnitzer says the bulk of the buyers who have been closing the REO properties are local, as they can move more quickly.