Owner loses apartments to foreclosure, delays 2nd sale

Virginia Highlands Apartment Homes taken back by lender.

A buy-and-flip apartment investor lost an Atlanta complex to a foreclosure sale Tuesday, while postponing the potential auction of another complex after missing payments.

A subsidiary of MSC Investment & Management LLC defaulted on a loan at Virginia Highlands Apartment Homes at 609 Virginia Ave., resulting in its being taken back by its lender H.I.G. Realty Financing for $65 million. No other bids were placed on the nine-building, 270-unit complex, which Mableton-based MSC acquired last year for $81 million.

Another property owned by a MSC subsidiary — Celebration at Sandy Springs at 7000 Roswell Road — was also scheduled to go through foreclosure Tuesday, but the sale was postponed, accord- ing to the lender’s attor- ney Greg Null. No further details on the delay or the status of MSC’S $47.5 mil- lion loan with Orec Structured Finance Co., which is set to mature in January, were provided.

The loans on both commu- nities were for about three years with rates that were not fixed, while represent- ing more than 70% of the purchase price. Experts said long-term apartment hold- ers typically borrow about 50% of the cost.

MSC did not respond to requests for comment from The Atlanta Journal-con- stitution.

While multiple prominent office buildings and hotels in Atlanta have recently gone through foreclosure, apartment complexes have yet to come under widespread duress. But MSC’S loan dis- tress issues signaled poten- tial tough times ahead for aggressive investors that might get caught in the cross- fire of interest rate hikes.

MSC acquired both prop- erties before the Federal Reserve began to increase interest rates, which it has done 11 times since March 2022 to temper inflation.

While average rents in metro Atlanta saw dra- matic increases in 2021 after the onset of COVID- 19, rents have cooled in recent months. Rents only grew 1.3% in 2022, a stark decline from 17.8% a year prior, according to data from Costar. Occupancy rates have also dipped slightly in recent months, real estate services firm Berka- dia reported in June.

Jim Townsend, a longtime resident at Virginia Highlands Apartment Homes, told the AJC in an email that he noticed more empty units since MSC acquired his complex, which was built in 1988. He added that property managers were stapling paper flyers to trees around the city in hopes of attracting future residents.

“This property location practically sells itself, yet MSC’S mismanagement drove the nail further into the coffin,” Townsend said. “They made a bad decision in order to make a lot of money.”

Celebration at Sandy Springs, which has been rebranded at Grace Apartment Homes at Sandy Springs, was built in 1968. Experts said older apartment complexes are more at risk of loan issues during financial downturns.