Mini Case Study on Two Knoxville Apartment Sales in 2011

Contributed by: Steve Goldman, CCIM & John Dempster, Brokers, NAI Knoxville

We thought you might be interested that on June 16, we closed on the sale of the Ashlandwood Apartments. This is a 79-unit complex very close to West Town Mall in west Knoxville. The buyer was the owner of the adjacent Briarcliff At West Hills Apartments. The sale included a short sale with a local bank and we acted as “facilitator agents” in the transaction.

This was a really tough deal to get done. And frankly, we are proud of getting through it successfully in 115 days from start to close. Here is a short case study on the transaction.

We learned Feb. 22 that the apartments were in foreclosure with an auction in three weeks. A commission agreement was worked out, which included permission to contact the lender regarding a possible short sale. We delivered a written offer on Feb. 25. It was a complicated deal due to the short sale negotiation, dealing with other secured property etc., but it ultimately led to a fully executed contract at $1,850,000 on 4/1/2011, including the necessary agreements with the lender.

We were near closing when the hailstorms hit, causing over $50,000 damage. This caused delays until the insurance settlement could be reached and the funds paid.

A couple days before closing, we were informed that the title company refused to close because the ALTA survey showed nearly all the buildings encroached in the setbacks. The out-of-town buyer and his attorneys weren’t able to secure the required “legal but non-conforming” letters from the city and county fast enough, so John literally jumped in the car and worked this out in person at the courthouse, coming back to the office with the signed letters in hand in less than 24 hours after being asked for help.

A lot more drama ensued up to and even past the closing deadlines as final paperwork and payments were worked out.  Both parties and the title company worked into the evening before closing, making last minute changes to the settlement statement. Then, a “cloud on title” was discovered at the very last minute, requiring getting notarized signatures from an out-of-state relative. So, even on the day of closing, I was in constant contact with everyone including the bank’s attorney. We worked out a postponement of the foreclosure auction from 10:30am to 1:30pm as the final paperwork and funding was in process. They finally cancelled the auction when the loan payoff funds were confirmed as received by the bank approximately an hour before the auction – the transaction was finally closed. Yikes, what pressure!

• 494 emails that I was sent or received.
• Countless phone calls and numerous face to face meetings with the parties involved.
• 3 days to get an offer from the ultimate buyer.
• 35 days to negotiate the price and written agreements between the buyer and seller and the short sale agreement with the lender.
• 77 days from binding agreement date to closing, including a delay due to the hail storm and insurance settlement.
• A grand total of 115 days from the first day I heard about the property becoming available to Closing.

Frankly, this is pretty fast, all factors considered!

In this case, the marketing and pitching would appear to be the easy part. What only our associates (and wives and kids) know is the years we’ve invested in research, analysis, driving and relationship building that resulted in us getting the call about the property’s critical situation, knowing who to pitch it to, having existing business relationships with the lender’s special asset manager and his attorney, and on and on.

Most people have no idea about all the work it takes by the broker and each of the other parties, to get a deal “with hair on it” successfully closed. I appreciate the bank’s special assets manager calling and congratulating me after closing, saying that, “This never would have gotten done without you.” But I am very grateful that we were working with a sophisticated, reasonable buyer and special assets manager, because it required all of us pulling together to get this deal done.

Spring Meadow Apartments   Here’s a much simpler story about another property we brokered earlier this year. We had been pursuing the listing on the 248-unit Washington Ridge Apartments (now renamed Spring Meadow) for almost a year.  When the partners finally decided to sell, we made six calls and brought in two offers. The successful bidder ultimately paid $11,525,000 for the 1990 complex.  What convinced the sellers to select him was the fact that it was an all-cash deal – the offer was not subject to financing, which delays and kills most deals through the recession.

There were still complications, such as working out the early payment on bonds, hashing out the splits between real and personal property (significant tax effects on each party), issues discovered in due diligence etc., but ultimately, it was a fairly quick, clean closing with winners on both sides. 

We pitched this property to the first prospect at the end of September 2010 and the written offer was made November 5. The contract was executed December 20 and the sale closed February 4, 2011. From our first pitch, this is 39 days to first offer, then 45 days to negotiate and sign the contract and a total of 130 days from pitch to closing. Again, for the size and complexity of a sale this size, this was a pretty fast transaction. Again, the key was our knowing to whom to present this particular property.

We are sharing these case studies with a few people like yourself to give you some insight into why working with or referring investors to experienced, local multifamily specialists like ourselves is really in everyone’s best interest. Please call us and see how we can help all the parties.

Even if an investor has a favorite broker they want to work with, we are happy to work out strategic and professional co-listings with that agent so that the owner gets all the advantages of our expertise without damaging his relationship with his real estate agent.

Never hear from the agents working a property? Our clients are kept informed 24/7 of our marketing activities via smartphone or PC using REAConnect. See how at: www.reaconnect.com/Tour (click Show All Content, if asked by your browser.)

This is the best time in years for an investor to sell 50+ unit apartment complexes, conventional or subsidized. The prices are strong, the demand is high, and we know the buyers and exactly what they want now. We work all of East Tennessee, from Bristol to Newport, Chattanooga, to Cookeville. And as part of the NAI Global Multifamily Group, we can connect investors with the commercial real estate experts anywhere.