Van Rooy Properties plans to spend $5.5 million renovating a 277-unit west side apartment complex that it acquired a month ago in an unusual deal.

The local apartment owner and manager bought the former Lakeside at the Brickyard complex near 21st Street and High School Road by purchasing its bank note and then foreclosing on the owner, Chicago-based Northern Realty.

Russ Seiler, vice president of finance and development for Van Rooy, said it’s the first time the company has taken that path to ownership. Seiler wouldn’t identify the lender or the size of the loan, but he said Van Rooy took over the note by paying about a third of the outstanding debt obligation.

The combined cost of buying the bank note and rehabbing the property will come in at about a third of the replacement cost of the complex, which contains a mix of one-, two- and three-bedroom apartments.

The overall cost to Van Rooy of acquiring and refurbishing the property is low in spite of the extensive nature of the rehab. Van Rooy intends to spend about $20,000 a unit on the interior and exterior makeover. A typical apartment rehab is in the $5,000-to-$7,000 range, said George Tikijian, whose company Tikijian & Associates specializes in the sale of multi-family properties.

The deal Van Rooy got wasn’t the only selling point. Seiler said the proximity of the property to the Indianapolis Motor Speedway, planned improvements to Speedway’s Main Street and an abundance of retail on Crawfordsville Road also made the complex attractive.

Monthly rents will increase from the current range of $450 to $750 to between $500 and $850 when new tenants begin moving in next summer. Seiler said the increase will keep the property competitive with five or six other nearby properties that range in age from seven to 30 years old. Van Rooy’s property, which will be renamed Eagle Lake Landing, was built in 1976, but the money the company is pouring into it will justify the higher rents, Seiler said.

Seiler said buyers who want to acquire properties by purchasing outstanding bank notes need to consider their appetite for what could go wrong in such a deal. It took Van Rooy about six months to foreclose after buying the note, but it could easily have taken 18 months, he said. “You have to figure out if you’re comfortable with that risk.” And banks, Seiler said, are not as willing as people might think to unload loans gone bad. “It’s not as clean and simple as everybody might think.”

Seiler’s priority now is lining up a HUD-approved loan, insured by the Federal Housing Authority, to finance the rehab. It’s a lengthy process because HUD is flooded with applications from companies shut out by private lenders.

“The multi-family sector is very fortunate to have government-sponsored entities, such as FHA, still in the game. Other sectors don’t have that,” Seiler said.

Mike Petrie, a partner with locally based PR Mortgage, the firm arranging financing for Van Rooy, said companies that want to finance purchases and major rehabs have nowhere else to turn but the FHA, whose historical role is to step in when there is a lack of liquidity in the market.

But its role today is unprecedented, Petrie said. “We’ve been in business 30 years. This is the first time the FHA has been the preferred lender.”