Fractured Apartment Communities

[Dan Handford]

I've be seeing quite a few fractured apartment communities being marketed lately and these have always turned me off due to their complexities and challenges. 

Fractured Community - an apartment/townhome community where you only own a fraction of the overall number of units in the complex. This is typically seen in a community where one of the former owners try to sell of each unit as a condo-style unit. These communities typically include an HOA.

Have you ever underwritten or acquired one of these types of communities? What are the pros/cons that you see?

[Don Konipol]

@Dan Handford

Hard problems to solve. Lots of work required. We made a bid for 57 units owned by sponsor in a. 76 unit building. We were outbid by a significant margin, and while the winning bidder was able to make it profitable, the profits were only a small fraction of what they anticipated, and the 3 year investment in 2009 wasn’t liquidated until 2018. Still, at the right price.......

An easier, IMO fractured opportunities exist in the old 1970 style Holiday Inns. They usually contained 150-170 units surrounding a pool and big courtyard. These days max size for a Interstate motel outside of a major urban area is around 70 units. We own one of these, actually we own what was half of the original Holiday in, about 58 units. While the owner of the other half struggles to pay pool maintenance, provide breakfast and attract nightly travel business with no franchise affiliation, we do very well housing month to month tenants and temporary workers looking for weekly stays. The key is an active, full time, live on the premises manager, with heavy experience with these type of tenants, a good relationship with the political municipal authorities, and keeping the place spotlessly clean while attending needed repairs immediately, bit inexpensively.