INDIANAPOLIS—The RADCO Companies, a real estate turnaround specialist that acquires distressed residential communities, has just purchased Lakewood Lodge, a 454-unit apartment community in foreclosure, for $16.5 million. But Norman J. Radow, the company's founder and CEO, tells GlobeSt.com that he expects opportunities like this Indianapolis property, bought from the Lehman estate, to become much rarer as the economy improves and the number of troubled properties declines.
“We've been surprised at high volume of distressed properties in the first half of this year,” he says. “But we're now seeing the end of our pipeline; we're not seeing as many distressed deals.”
The aftermath of the housing crash certainly created many opportunities for the firm. Lakewood Lodge, which the Atlanta-based RADCO will rebrand as Ashford at Keystone, is their 20th residential purchase in less than two years, and its third purchase in the Midwest within the past 90 days. In March, RADCO acquired Brittany Court in Geneva, Ill., and rebranded it Ashford at Geneva. And in early June, RADCO acquired Covington Court in St. Charles, Ill., and rebranded it Ashford St. Charles.
But Ashford at Keystone held a special appeal. RADCO was outbid for the property last summer, but since then, the bid winners failed to complete the purchase. And RADCO was able to pick it up at essentially the same price they proposed one year ago. Furthermore, in the last year the property's occupancy rate increased from about 92% to 97% and the rents also increased. “Even the 92% occupancy was not too shabby,” Radow says, “so we think we're buying this development at an exceptional value.”
Reviving distressed properties remains a mission for RADCO, and the company plans to pour a good deal of money into their new acquisition. “It's almost going to be a new project,” Radow says, after they spend about $13,000 per unit redoing the interiors and landscaping, putting in new windows and HVAC systems, among other improvements.
“It's really hard what we do. There's less compensation and a little more risk. But for 19 years, this is all we've done; we've never done a market deal. This way, we're adding to society and improving our communities; that's why we love it.”
Due to the risk and uncertainty of reviving distressed properties, RADCO prefers working with private investors rather than institutions. “You've got to move with an alacrity and quickness,” Radow says, “and if you have to sit and explain things to a 24-year-old analyst in New York, it's not something that works in these types of deals.” Still, among the hundreds of RADCO investors, “many are Wall Street guys who invest privately with us. They know if we dealt with institutional investors it would constrain our ability to be successful.”
The declining number of available developments does not bother Radow. The company still has several deals in the works which should net them another 1,600 units. After those deals get signed, RADCO will have about 5,500 units to redevelop and manage. “That's the size of a small city; so we'll have a lot to do.”
And a true revival of the multifamily market, and the accompanying increases in occupancy and rental rates, certainly won't hurt RADCO's bottom line, even if that pipeline of distressed properties significantly dries up. “It validates everything we've done. We're happy for everything that is happening.”
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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.
