Apartment REO Analysis

[Jimmy H.]

72 unit apartment REO
Lexington, ky
48 - 1BD/1BA 600 sqft - rent is approximately $400
20 - 2BD/1BA 725 sqft - rent is approximately $525
4 - 3BD/1BA 900 sqft - rent is approximately $650

Currently, tenants are paying all utilities or have the choice to pay an extra $100 in rent for utilities included (I would get rid of this option and make all utilities tenant-paid). Not in the best part of town but not in a war zone, I would consider it a working class hispanic area - there is crime and drugs but not a war zone by any means. Property was built in 1969 and consists of ten 2 1/2-story brick buildings. I would consider it to have a standard amount of deffered maintenance for an REO, no big issues to note - although I have not completed inspection, appraisal, or enviro. Property was purchased for $1,550,000 in aug '02 and $1,680,000 oct '04 and repossessed at master commissioner sale in Jan '10 for $933,000 and is now listed at $960,000 with price continually reduced from $1,360,000 in initial REO listing. I have just started to communicate with the lender regarding financing as the agent has indicated that the lender is willing to finance - I will keep you posted on those results. It is currently 50% occupied as the bank has slowly been vacating the property while in REO - at the aforementioned rent levels I think the property wouold be relatively easy to fill based on competition in the area..

Realtor offers the following proforma:
Proforma Year 2010
Scheduled Gross Income$444,000
Effective Gross Income$430,740
Operating Expenses$255,814
Net Operating Income$136,479

I know proforma's are relatively worthless and I have not taken any proforma material into my consideration, the rents listed above are based on my own personal market assessment and are conservative - pro forma rents are $475, $575, and $675 respectively. What strikes me is the $255k in expenses - a bit on the high side.

Thoughts?