Despite rising interest rates and falling rents, many apartment investors have lamented the lack of distressed assets hitting the market.
Mike Trench, executive vice president and co-portfolio manager of Heitman’s value series, told Multifamily Dive in emailed comments that distress opportunities have been few and far between when the firm announced the final close of Heitman Value Partners Fund VI.
“Banks, LifeCo’s and debt funds are generally taking the same positive stance on the living sectors as we are on the equity side,” Trench previously said. “Lenders have been willing to work with strong sponsors on good real estate that just needs some re-working of the capital stack or a slightly extended timeline.”
However, for investors willing to look at 30- and 40-year-old properties, troubled properties are available.
Jamison Manwaring is one of those people. In 2024, his firm, Neighborhood Ventures, launched the Arizona Multifamily Opportunistic Fund. It aimed to purchase five to 10 multifamily properties in the state, mainly in the middle market, at 30% discounts.
“We’re OK with a little older vintage,” Manwaring said. “It doesn’t have to be brand-new. A lot of the institutional guys are only buying brand-new vintage. So it’s really an opportunity for us.”
With Fund I, Neighborhood Ventures made multiple investments. “With the resale market being very slow and very few buyers, we saw an opportunity to pick up some of these distressed assets,” the co-founder and CEO of Neighborhood Ventures told Multifamily Dive.
Now, Neighborhood Ventures is back with Opportunistic Fund II, a $25 million vehicle that will acquire five to eight distressed multifamily properties across high-growth U.S. markets, including Denver; Tampa, Florida; Salt Lake City; Charlotte, North Carolina; Dallas; and Phoenix.
“Since we had a very active year last year, we have a lot of brokers reaching out to us now with off-market deals that the sellers want to quietly sell for big losses,” Manwaring said. “We launched Fund II to continue on the trajectory of buying these distressed assets.”
The new fund will target midsize multifamily communities, typically 50 to 200 units, purchased at 30% or more below intrinsic value through lender purchases, pre-foreclosures and forced sales. “On average, we are about 40% of the cost of the sellers who are selling it,” Manwaring said.
Neighborhood Ventures plans to renovate, stabilize and eventually sell those assets after a hold period of approximately four years as overall market fundamentals recover.
“It's not broad-based distress like the GFC,” Manwaring said. “But it’s buildings that were bought in 2022. If the groups have short-term debt on them, those buildings are underwater.”
