AREA acquires defaulted debt on US apartment portfolio

The New York-based fund manager has teamed up with McDowell Properties to acquire a portfolio of 4,733 apartment units in Texas, Arizona, Florida and Oklahoma at a 40 percent discount to its $215 million face value.

AREA Property Partners has acquired $215 million in defaulted loans backed by 17 apartment complexes at a 40 percent discount to book value, according to an announcement by the New York-based real estate fund manager. The firm bought the portfolio, which comprises 4,733 units in four states, through a joint venture with San Francisco-based real estate investment company McDowell Properties. 

According to data provider Real Capital Analytics, the joint venture purchased the assets from American Housing Foundation Community Development. A spokesperson for AREA said the portfolio was purchased on behalf of AREA’s Value Enhancement Fund VII.

AREA partner Steve Wolf called the purchase a “rare opportunity to acquire a portfolio of assets in high-growth markets at an attractive discount.” The portfolio has its greatest concentration in Austin, Texas, with seven properties. There are three other properties in Dallas, two properties in Phoenix, three in Tulsa and one each in Tampa and Jacksonville, Florida. The overall average occupancy rate for the portfolio is 84 percent. 

“The business plan calls for taking fee title to the assets and repositioning each asset, including exterior renovations, landscaping improvements, amenity upgrades and interior renovations,” Wolf said in a statement. “These assets will be able to compete with newer complexes in their submarkets while offering a much stronger value within their rent levels.” 

The properties in Austin, where job growth has been strong and projected as one of highest rental growth apartment markets in the nation, are located in two areas. One location serves the Northwest Austin corridor, which is anchored by major corporations such as IBM, Apple, the PayPal unit of eBay and Freescale Semiconductor, and the other location serves Austin’s CBD and the University of Texas. 

“These assets are being acquired at substantial discounts to replacement cost while multifamily fundamentals continue to improve,” said McDowell Properties president Patrick McDowell in a statement. “Under new ownership, we will implement a focused renovation plan combined with intensive asset management to maximize the value of the assets.”