The Elm Grove Gardens apartment complex today began a 24-hour online note sale that will close at 10 a.m. tomorrow.
Unlike a traditional auction where the winning bid acquires the problems, bidders this time are competing for the mortgage on the 51-year-old complex, which consists of eight, two-story buildings situated on 5.7 acres in north Baton Rouge, near the Baton Rouge airport.
The sale comes after the U.S. Department of Housing and Urban Development abated its Housing Assistance Payments contract, which covered rent for the complex’s 84 units before the buildings fell into a state of disrepair. HUD in late November moved the tenants, leaving the property empty and functionless.
Whoever wins the bidding can either work out a deal with the owner—negotiating new loan terms, a pay-back, etc.—or they can foreclose on the asset and then flip it or keep it as a long-term investment, says Justin Langlois of SVN | Graham, Langlois & Legendre, which is advising the special servicer. Based on what he’s heard, Langlois says the latter is more likely to happen.
Interest in the property is high, Langlois says, noting he’s received many phone calls and has racked up some 50 signed confidentiality agreements with several different kinds of potential buyers.
“It’s a mixed bag,” he says. “There’s a core group of people who scour the internet for these types of note sales, there are local developers who are interested, and the remaining one-third are national apartment owners.”
Each bidder varies in what they estimate spending on renovations. Some predict spending $10,000 to $12,000 per unit, while others want to pour in about $20,000 per unit, he says. Still, most anticipate stabilizing the asset, meaning they’d lease it back to enough tenants to make the complex at least 90% occupied.
The property isn’t expected to fetch much at the note sale. With an outstanding balance of more than $2 million, Langlois says he’d be happy to sell the note for $1 million, but realistically expects selling for anywhere from $750,000 to $900,000.
As of this afternoon’s deadline and with 20 hours left, the most current bid was for $350,000. Participation requires a $25,000 deposit.
“A bunch of these folks are just sitting, and the bids are in $50,000 increments,” Langlois says. “Later tonight or at some point early tomorrow morning, they’ll ramp up.”