Iron Stone’s Equity Fund Buys 13 Multifamily Distressed Mortgages
- Mar 19, 2009
By Anuradha Kher, Online News Editor Philadelphia–Iron Stone Real Estate Fund II recently completed its second transaction, the purchase of a portfolio of distressed commercial mortgages from Astoria Federal Savings Bank. The portfolio consists of 13 first mortgages collateralized by rental apartment buildings in the Philadelphia Metropolitan Area comprising a total of 358 units. The $50 million fund is managed by Iron Stone Real Estate Cos. and has high net-worth individuals as well as some institutional investors.Some of the 13 buildings, ranging from 11 to 64 units, are facing high vacancy rates and others are entirely vacant because they were not managed well.“The lender, who is New York-based, was not comfortable in the Philadelphia market and the borrower who owns several other properties found it increasingly difficult to manage these properties and eventually stopped making payments,” Matthew Canno, director of acquisitions, tells MHN. “It was like a house of cards that collapsed,” he adds.In this highly volatile market, the multifamily sector is the bright star. “We prefer buying multifamily mortgages because there still is a market for multifamily, it has the least number of variables of all the sectors and it is definitely the most stable sector of all real estate,” explains Canno. As both investors in distressed commercial mortgages and property managers, as well as developers, Iron Stone maintains the flexibility to take title, renovate and stabilize the properties if necessary. Whether the investment is held for cash flow or sold at a substantial premium, the company expects to realize an outsized return.“We are currently working with the borrower to see if we can reach an agreement, but we do expect to own these properties soon,” says Canno. “We plan to fix all the issues the buildings are facing, make them more salable and sell them to a local property manager.”While buying up distressed mortgages, the biggest challenge is identifying the exit strategy. “There is a lack of financing as well buyers right now,” says Canno. This is Ironstone’s second fund. The first one has been operating since the 1990s.