INDIANAPOLIS, IN- Oak Residential Partners specializes in turning around properties that, for one reason or another, don't produce enough revenue. But late last week they announced what might be a unique business deal on the Trails at Lakeside Apartments, a collection of 13 two-story buildings on 21 acres in Indianapolis.
“The property was entering into receivership,” said Richard J. Wise, Oak's managing principal, because, like many during and in the aftermath of the housing bust, the borrower had defaulted on its loan. Normally, the investors in the securitized pool of mortgages that back many of these developments would just cut their losses, Wise added, but this time, one of the Wall Street investors decided to take a different path.
The unnamed investor decided “'I'm going to bring in an operator and take over the property and turn this thing around,'” he said. “The idea that some Wall Street investor is going to buy such a property and try to effect a change is unusual. I'm sure it's happened in other instances, but it certainly doesn't happen often.”
The investor first contacted Oak last fall and asked them to assume day-to-day operations. Along with its partner Oak Realty Group, the firm has acquired and managed $215 million of commercial real estate. They typically look for well-located properties that are slightly older and then provide value-added improvements and professional management.
“This is a good opportunity to reposition the property and get its cash flow up to help the investor mitigate their losses. “It's a good, solid Class B asset, but it suffers in areas of deferred maintenance and the rents are low relative to its competition in the market.” The development sits on a highly visible site at the corner of East 56th St. and Allisonville Rd. on the city's northeast near several popular entertainment districts. It includes a clubhouse, outdoor swimming pool, lighted tennis court, fitness center and pet park.
“This is the ideal 'roll up the sleeves' turnaround play that Oak specializes in.” The firm has brought in Michigan-based Village Green Management Company to manage the property for the venture. Furthermore, “we've brought in some fresh equity capital,” and will begin putting in upgrades to both the exteriors and interior spaces.
“It's no different than any other value-added investment that we've made,” Wise said. “It's how we got to it that's different.”
Wise, however, is not certain that this type of transaction will become popular. Although many multifamily properties end up in default, most investors just don't have any interest in or experience running one.
“I think it's just a unique situation with a unique investor that saw an opportunity to turn things around rather than just walk away.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
