A buy-and-flip apartment investor lost an Atlanta complex to a foreclosure sale Tuesday, while postponing the potential auction of another complex after missing payments.
A subsidiary of MSC Investment & Management LLC defaulted on a loan at Virginia Highlands Apartment Homes at 609 Virginia Ave., resulting in it being taken back by its lender H.I.G. Realty Financing for $65 million. No other bids were placed on the nine-building, 270-unit complex, which Mableton-based MSC acquired last year for $81 million.
Another property owned by a MSC subsidiary — Celebration At Sandy Springs at 7000 Roswell Rd. — was also scheduled to go through foreclosure Tuesday, but the sale was postponed, according to the lender’s attorney Greg Null. No further details on the delay or the status of MSC’s $47.5 million loan with Orec Structured Finance Co., which is set to mature in January, were provided.
The loans on both communities were for about 3 years with rates that were not fixed, while representing more than 70% of the purchase price. Experts said long-term apartment holders typically borrow about 50% of the cost.
MSC did not respond to requests for comment from The Atlanta Journal-Constitution.
While multiple prominent office buildings and hotels in Atlanta have recently gone through foreclosure, apartment complexes have yet to come under widespread duress. But MSC’s loan distress issues signaled potential tough times ahead for aggressive investors that might get caught in the crossfire of interest rate hikes.
MSC acquired both properties before the Federal Reserve began to increase interest rates, which it has done 11 times since March 2022 to temper inflation.
While average rents in metro Atlanta saw dramatic increases in 2021 following the onset of COVID-19, rents have cooled in recent months. Rents only grew 1.3% in 2022, a stark decline from 17.8% a year prior, according to data from CoStar. Occupancy rates have also dipped slightly in recent months, real estate services firm Berkadia reported in June.
Jim Townsend, a longtime resident at Virginia Highlands Apartment Homes, told the AJC in an email that he noticed more empty units since MSC acquired his complex, which was built in 1988. He added that property managers were stapling paper fliers to trees around the city in hopes of attracting future residents.
“This property location practically sells itself, yet MSC’s mismanagement drove the nail further into the coffin,” Townsend said. “They made a bad decision in order to make a lot of money.”
Credit: Miguel Martinez
Credit: Miguel Martinez
Celebration At Sandy Springs, which has been rebranded at Grace Apartment Homes at Sandy Springs, was built in 1968. Experts said older apartment complexes are more at risk of loan issues during financial downturns.
Mike Carnathan, the managing director of research and analytics for the Atlanta Regional Commission, said last month during the annual Intersection conference in Sandy Springs that the apartment complexes most under threat are those “that are 40 or 50 years old, probably at the end of their useful life.”
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