McKinley Appointed Receiver of 14-Asset Multi-Housing Portfolio

By Jeffrey Steele, Contributing Writer

Houston—In mid-August, a Texas court appointed the Residential Client Services team of Ann Arbor, Mich.-based McKinley as the receiver for a portfolio of 14 distressed multifamily properties in six states, encompassing 3,709 units. This brings McKinley’s distressed management portfolio to more than 22,000 units.

This deal is one of the nation’s five largest collateralized mortgage-backed securities (CMBS) deals of 2011, placing a portfolio of deeply troubled properties into the hands of a leading turnaround specialist. “It was a combination of excessive leverage and a weak owner-operator,“ McKinley CEO Albert M. Berriz tells MHN. “[The previous owner] couldn’t make its mortgage payments and lost its entire portfolio . . . There will have to be some physical rehabilitation, and [properties] will need to be stabilized because of weak occupancies.”

The portfolio is comprised of B- and C-class apartment buildings in the states of Texas, Virginia, Nevada, South Carolina, Florida and Maryland.

This is the first expansion for McKinley into Texas, a state garnering considerable favorable publicity for its robust economy. “I think there’s sort of a tale of two environments,” says Berriz of the state’s multifamily industry.

“The general Texas apartment market is improving, but there are a lot of distressed assets in Houston and Dallas that are not operating like the rest of the market. They have been poorly operated and are in physical disrepair.”

McKinley expects to witness varying outcomes across the portfolio, based on locations and market conditions. Properties in Las Vegas will present more of a challenge, while those in the excellent markets of suburban Washington D.C. will be easier to turn around. “We’ll dispose of all of them,” Berriz says of the properties. “We may see some of the assets going to market earlier than later.”

The receivership appointment is testament to the expertise and value creation of McKinley, Berriz adds, noting his company has become the go-to firm for distressed assets, based on its track record of repositioning those assets and its reputation for very expeditious apartment community revitalization.

“We’ve been in the workout business since the mid-1990s,” he says. “We did a major workout for HUD in 1996, and we’ve done some large workouts for Freddie Mac. In fact, those were the two largest workout projects Freddie Mac ever had: Lake in the Woods in Ypsilanti, and Lighthouse Bay in Jacksonville. And we‘ve done work over the last 15 years for all the CMBS special servicers.”

To handle the workouts, McKinley will bring in its own teams of specialists. “It’s a very portable real estate platform,” Berriz says of that operation.

Among other tasks, the teams are expected to get to work addressing the buildings’ physical disrepair and qualifying current and prospective tenants. “Those are the things that will have to be attended to right away,” he says.

“By and large, the people living there will stay there and be the lucky recipients of a better quality of life.”