S2 Capital Purchases Sun Belt Portfolio

S2 Capital has acquired a five-property, 1,768-unit distressed portfolio with communities in the Dallas, Knoxville and Nashville, Tenn., markets. The transaction was sourced off-market and focused on properties that were facing foreclosure.

The Dallas-based firm has invested $60 million in a new joint venture with Trinity Investors, the existing limited partner, through a structured preferred equity investment. S2 has also secured a new five-year $170 million senior loan through ACORE Capital for the transaction.

S2 will take over as the general partner with full operational control across the portfolio including community and construction management. The firm will also take major decision rights about the properties to protect the preferred equity investment.

The five properties were previously owned in a joint venture with Trinity as the limited partner and GVA Real Estate Investments of Austin, Texas, as the general partner. GVA Real Estate Investments was listed as the most recent owner of four of the five properties, according to Yardi Matrix data. GVA Property Management was listed as the property manager of the fifth asset, the 121-unit North Park Apartments community in Knoxville. Middle Farms Capital was the most recent owner of that property, Yardi Matrix reported.

GVA Real Estate Investments has defaulted on numerous mortgages in recent years. Last month, Lion Real Estate Group acquired a two-property apartment portfolio in Charlotte, N.C., out of foreclosure. The deal was made on behalf of Lion’s Fund III investment vehicle. The properties were sold by a debt fund which had foreclosed on the loans previously held by GVA.

Portfolio details

North Park Apartments is located at 5237 Tillery Road in Knoxville. Built in 1970, the property has one-, two- and three-bedroom floorplans ranging in size from 573 to 899 square feet with an average of 736 square feet. The community features 16 buildings on nearly 10 acres.

Landmark at Gleneagles, situated at 4909 Haverwood Lane, is located in Dallas. The property has 590 units in 46 buildings across nearly 26 acres. It was built in two phases in 1985 and 1995. GVA Real Estate Investments acquired the property in December 2022 from Starwood Capital Group for $99.8 million, according to Yardi Matrix data.

The community has one- and two-bedroom apartments ranging in size from 700 to 1,205 square feet with an average of 912 square feet. The property has three swimming pools, a fitness center, clubhouse, business center, tennis/pickleball court and basketball court.

Stone Ridge is located at 500 Piccadilly Row in Antioch, Tenn., a Nashville suburb. Built in 1984, the property has 340 units in 34 buildings on 32.3 acres. It was acquired by GVA Real Estate Investments in September 2022 from Bridge Investment Group along with Hickory Highlands in Antioch and a Nashville apartment property. The community has one-, two- and three-bedroom floorplans ranging in size from 720 to1,501 square feet with an average of 886 square feet. It features two swimming pools, a sundeck, a fitness center, a clubhouse, a tennis/pickleball court, a basketball court and a playground.

Hickory Highlands is situated at 100 Hickory Highlands Drive in Antioch. Built in 1989, the property has 460 units in 25 buildings on 30.3 acres. The property was part of the September 2022 portfolio purchase from Bridge Investment Group. It has one- and two-bedroom units ranging in size from 540 to 1,069 square feet, with an average of 782 square feet. The property has three swimming pools, a fitness center, clubhouse, tennis/pickleball court and volleyball court.

The Park at Fountain City, the last property in the portfolio, is situated in Knoxville at 2132 Adair Drive. Built in 1970, the community has 256 units in 14 buildings across 18.5 acres. GVA Real Estate Investments purchased the asset in December 2021 from Middle Farms Capital. The property has one-, two- and three-bedroom units ranging in size from 691 to 1,006 square feet with an average of 810 square feet. The property has a playground and nearby walking and bike trails.

Meeting demand

The five-property portfolio acquired by S2 is located throughout markets with growing demand for multifamily housing and limited new supply. It expands S2’s footprint in the Sunbelt, particularly in Tennessee, where the company has sought to invest in the Nashville and Knoxville markets for several years.

Ryan Everett, managing director and head of acquisitions for S2 Capital, said in prepared remarks that the transaction is an example of how the firm is taking advantage of targeted distress in the multifamily sector. He said S2’s vertically integrated operating platform combined with its discretionary capital positioned the firm as the preferred partner to step in as the new GP for the portfolio and address operating issues through a new business plan.

Founded in 2012, S2 focuses on value-add and core-plus investments. With about $11 billion in transaction volume, S2 has acquired more than 49,000 units through 145 acquisitions in high-growth markets. In addition to Tennessee, the firm is targeting opportunities in Texas, Arizona, Colorado, Florida, Georgia, North Carolina, South Carolina and Virginia.