Lynd, Declaration JV Seals Deal for Distressed Asset
This acquisition in a major Texas market is the first for the partners’ new specialized fund.
The Lynd Group, Declaration Partners and Corten Real Estate have acquired a distressed multifamily community in downtown San Antonio for $48 million. Augusta Flats is a newly constructed 260-unit luxury community.
This marks the group’s first distressed acquisition since Lynd-Declaration’s specialized fund was created in July. Lynd now owns and manages approximately 1,500 units in greater San Antonio. Lynd Living will manage Augusta Flats.
The community was 86 percent occupied at the time of the sale, Yardi Matrix data shows. It was purchased for near-par value from the prior owner’s lender, representing a discount from the previous trade in 2021. Benefit Street provided the loan.
David Lynd, CPM, CEO of The Lynd Co., told Multi-Housing News that operating expenses across his portfolio have increased by over 40 percent since 2019.
“This significant expense elevation has materially impacted the NOI of properties throughout the American market,” he said. “While we saw rent growth during the pandemic alongside inflation, we’re now witnessing consumer fatigue. As people deplete their savings and increasingly rely on credit, their capacity to absorb higher rents has diminished, leading to flattening or declining rental rates.”
Lynd said the combination of elevated expenses and stagnating rents creates a substantial market value gap. “This disparity will likely cause significant challenges over the next few years,” he said. “Property owners facing term defaults within the next 24 months may encounter serious valuation issues that will require resolution for survival. These circumstances create genuine distressed buying opportunities across all markets—no region appears to be immune.”
The Augusta Flats acquisition fits the company’s acquisition strategy. It focuses on two primary categories: properties trading at the largest discount to replacement cost and distressed assets with depressed valuations.
“We’re particularly interested in more affordable assets that fit these parameters,” Lynd said. “The Augusta Flats purchase aligns with our first category.”
The five-story community, located at 714 McCullough Ave., was initially developed in 2021 with studios, one- and two-bedroom apartments. It is near the Downtown Riverwalk and Pearl entertainment and dining districts.
As part of the repositioning, Lynd added wellness, home, and pet services, monthly events with a DJ, food truck gatherings, sound healing classes, educational workshops and movie nights.
Finding opportunities in distress
RREAF Holdings COO Jeff Holzmann told MHN that distressed assets can come in many forms. The most common type, he noted, is when an owner is defaulting on debt payments due to low occupancy, high delinquency or high interest on the debt itself.
“At that point, the lender takes ownership of the asset and usually puts it up for sale to the highest bidder,” he said. “This is also the scenario where equity is generally wiped out.” There are other cases as well.
“It is often said that you ‘shouldn’t let a good crisis go to waste,’ groups with available capital and acquisition resources that can move fast can usually find the best deals when other assets or sponsors become distressed,” Holzmann stated.
Eric Brody, managing partner of ANAX Real Estate Partners, told MHN that the rise in distressed multifamily properties across New York City often results from shifting market dynamics, including regulatory pressures, rising operating costs and financing challenges.
“At ANAX, we see these challenges as opportunities to unlock value,” Brody said.
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Jay Remillard, co-head of CP Capital US, said that a significant amount of distress was expected in the multifamily marketplace during the past few years as interest rates skyrocketed. The so-called distressed funds raised billions of dollars to capitalize on this anticipated tsunami.
“But, by and large, the tidal wave never arrived,” Remillard said. “A combination of lenders being flexible with sponsors regarding coverage ratios, interest rates and extensions, and better-than-anticipated underlying fundamentals for multifamily properties despite a historic wave of new supply has kept much of the distress away, with some small pockets resulting from either bad sponsors or bad assets that folks wouldn’t really want to own.”
Remillard said that even considering these circumstances, there are still great deal opportunities. Among them, investors are finding newly constructed assets normally considered core investments for value-add returns at below replacement-costs prices.
“There are also situations where a given property might be quite healthy financially,” Remillard said. “Still, the owner is facing some stress points: a desire for liquidity, a need to rebalance a portfolio with too much exposure to the office, and an expiring fund life or a business plan that cannot be extended.”
Remillard said, to several firms, the ideal scenario involves precisely that: not so much a distressed asset as a distressed situation that could still lead to high returns.
Managing Director of Excelsa Properties David Fletcher told MHN that investors have historically been impatient for distressed opportunities to present themselves.
“Listed securities sell-off and rebound much faster than real assets,” Fletcher said. “The GFC and the S&L each took 18 to 36 months to present deeply discounted real assets. Thankfully, the current repricing and distress stems from a period of liquidity surplus, which drove asset prices unsustainably high and not from a banking crisis.”
Fletcher continued to note that so far, lender impairments have been limited. Factors such as low unemployment and high occupancy rates do not alleviate diminished valuations despite supporting operations. And as loans come to maturity and interest caps expire, owners are being forced to make decisions. Those decisions generate distressed situations, loan sales and asset sales at valuations well below peak pricing.
“The market remains liquid, and dispositions are orderly. In the multifamily market, the flat interest rate curve is not bailing out owners nor leading to lender impairments,” Fletcher said. “Assets are selling close to or just above the last dollar of highly leveraged loans and well above the more conservative bases of agency lenders.”
