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AIMCO rethinks sale of four apartment complexes

December 22, 2009

A Denver-based company that just sold its largest Indianapolis apartment complex has taken its four remaining local properties off the market.

Apartment Investment & Management Co. closed earlier this month on the sale of the 1,261-unit Lake Castleton Apartments at 75th Street and Shadeland Avenue. It was the 16th Indiana property sold by AIMCO in the last year as the giant owner of apartment communities worked toward its goal of selling its Midwest properties to raise money to pay down debt.

But AIMCO stopped short of that goal when it decided in November to hang onto the following local apartment complexes:

Scandia apartments, a 444-unit complex near 96th Street and Allisonville Road;

Fisherman’s Village, a 328-unit property on Crawfordsville Road just outside Interstate 465;

Pebble Point, a 220-unit complex adjacent to Fisherman’s Village; and

Bay Head, a 202-unit complex on West 38th Street just west of I-465.

The company will attempt to refinance all but the Scandia property and will keep them for the time being, said Duke Hardy, a broker for Tikijian Associates, which represented AIMCO in the sale of Lake Castleton. Hardy said AIMCO will reevaluate selling them at a later date.

Lake Castleton was purchased by a Los Angeles-based hedge fund, QVT Mount Auburn Capital, which is the real estate unit of QVT, a New York-based hedge fund with $8.5 billion under management. The purchase, the dollar value of which was not disclosed, included an investment by Houston-based Bluestone Property Management, which will manage the Lake Castleton complex.

Lake Castleton, built in phases between 1978 and 1982, became AIMCO’s largest Indianapolis complex a year ago when AIMCO sold Westlake Apartments near I-465 and Rockville Road to Hampshire Properties, a Brooklyn, N.Y., based investment group. At 1,381 units, Westlake is the city’s largest apartment complex, Hardy said.

QVT Mount Auburn Capital’s purchase of Lake Castleton is its second purchase here in the fourth quarter. In October it bought AIMCO’s 166-unit Quail Run complex in Zionsville.

The hedge fund considered buying several of AIMCO’s local properties in the last year. Lake Castleton’s size and Quail Run’s location in Zionsville were attractive to the buyer, Hardy said. QVT, which has investments around the world, likes this market because it’s inexpensive relative to other U.S. cities and therefore offers a greater potential return.

QVT Mount Auburn Capital assumed an existing mortgage in the purchase of Quail Run. The Lake Castleton purchase was financed using a HUD-insured loan originated by locally based PR Mortgage & Investment Co.

Mike Petrie, a partner with PR Mortgage, told IBJ last month the market for financing is so tight that buyers often have nowhere to turn other than Federal Housing Authority-insured HUD loans.

Petrie said this is the first time in his company’s 30-year history that the FHA has been the preferred lender for most buyers.

Hardy said prices are somewhat depressed for apartments, especially at the middle and low ends of the market. Tikijian is handling the sale of some distressed properties that have sold or are listed for as little as $10,000 per unit. At the other end of the spectrum are Class A complexes on the north side, which a few years ago were selling for more than $100,000 a unit.

Hardy thinks Class A complexes could still command such a price, though no such complexes have changed hands since the beginning of the recession. The AIMCO properties purchased by QVT Mount Auburn Capital are not considered distressed, nor are they Class A, Hardy said.

Prices in the market below Class A are depressed because of the lack of available financing and a softening in occupancy and rents because of high unemployment. Hardy said the first-time homebuyer’s tax credit offered by the federal government also had a negative affect on apartment occupancy.

Average apartment occupancy in the metro area is just more than 89 percent, down from almost 91 percent in 2008, according to a survey by Tikijian Associates.
Lake Castleton, which charges monthly rents of between $400 and $835, was between 94 percent and 95 occupied when QVT Mount Auburn agreed to buy the complex.

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