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Vehicle Buys Student-Housing Loan

Published by Real Estate Alert (www.REAlert.com) on January 12, 2011

An investment vehicle that targets nonperforming debt on multi-family properties has acquired a $40 million construction loan secured by a student-housing complex in West Virginia.

The vehicle, a joint venture between apartment specialist Bridge Partners of Walnut Creek, Calif., and an undisclosed institutional investor, will likely foreclose on the 994-bed dormitory in Morgantown, about three miles east of West Virginia University. The plan would be to stabilize the property by lifting occupancy — now at about 70% — and flip the property within a few years. Marcus & Millichap brokered the loan sale, which closed three weeks ago.

The Bridge partnership acquired the note at a substantial discount to its face value. The seller was Huntington National Bank of Columbus, Ohio, which originated the loan for a local developer in 2006. The developer completed construction of the 322-unit West Run Apartments in 2008, but defaulted on the loan after missing payments in late 2009 and early 2010, according to local news reports.

The joint venture launched last year with $250 million of equity. With leverage, the partnership can invest up to $750 million in “loan-to-own” opportunities. It made its first acquisition in the fourth quarter: a $13 million defaulted loan on a Pensacola, Fla., apartment complex.

Bridge was founded in 1990 by Steve Klein and Ken Beall. The firm’s apartment portfolio encompasses 6,000 units.