Atlanta apartment investor faces foreclosure crisis

An Atlanta apartment investor, specializing in buy-and-flip properties, had one of its complexes fall into foreclosure, while another potential auction was postponed due to missed payments.

A subsidiary of MSC Investment & Management LLC defaulted on a loan for the Virginia Highlands Apartment Homes located at 609 Virginia Avenue, the Atlanta Journal Constitution reported. 

The lender, H.I.G. Realty Financing, took control of the property through foreclosure for $65 million. No other bids were placed on the nine-building, 270-unit complex, which MSC had acquired just last year for $81 million.

Another property owned by an MSC subsidiary, Celebration At Sandy Springs at 7000 Roswell Road, was also slated for foreclosure, but the sale was delayed. 

No reasons were given for the postponement or the status of MSC’s $47.5 million loan with Orec Structured Finance Co., which matures in January.

Both loans for the properties were relatively short-term — about three years — with variable interest rates that amounted to over 70 percent of the purchase price. 

Experts said that long-term apartment investors typically borrow around 50 percent of the acquisition cost. 

While the foreclosure wave has impacted office buildings and hotels in Atlanta, apartment complexes have so far remained relatively untouched. However, MSC’s loan defaults may be a sign of challenges ahead, particularly as interest rates continue to rise. MSC made these property acquisitions prior to the Federal Reserve’s series of 11 interest rate hikes since March 2022 aimed at curbing inflation.

The Atlanta rental market, which experienced significant rent increases in 2021 due to the onset of COVID-19, has seen a cooling trend in recent months. Rent growth slowed to just 1.3 percent in 2022, a substantial decline from the nearly 18 percent increase the previous year, according to the outlet, citing data from CoStar. Berkadia, a real estate services firm, reported a slight dip in occupancy rates in recent months.

— Ted Glanzer

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