Mom-and-Pop Owned Unit in Newly Sold MF Complex

Multi-Family and Apartment Investing
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Mom-and-Pop Owned Unit in Newly Sold MF Complex

David L.
Charlottesville, VA · Member since 2014 · 37 posts · 8 votes

Multi-family investors, I put a single condo unit under contract to buy, within a 200+ unit complex that has about 80% of the units owned by an LLC, which they operate as apartments. Days after securing the contract on my unit I found out the corporate-owned units were all just sold; transaction closed and now part of public record.

Based on the average price per unit that the new corporate buyer just paid in acquiring the majority of the rest of the complex, I should theoretically have significant instant equity on my unit, as soon as I close.

So my questions are:

  • It seems like a no-brainer to me that the managers/representatives of the entity that just acquired the majority of the condo/apartment complex ought to be interested in adding another unit to their holdings (same complex / same building as their own units).  Am I overlooking anything that might cause them to feel otherwise?  They already have onsite management and would appear to be subject to any local/state requirements that apply to operating an apartment complex of the applicable size.
  • Assuming they would be interested in owning additional units in the same complex they just acquired, is there any reason why they generally wouldn't be willing to pay the equivalent price per unit that they just paid a month ago for the rest of the complex?
  • If I decide to keep (BRRR) the unit that I have under contract, rather than flip it, are there any particular pitfalls I need to be mindful of, owning a unit in a condo complex that has a single majority owner like this? For example, if they presumably want to make improvements to their new investment, improving common areas, etc., can they / are they likely to force through a special assessment that will apply to all owners, through the HOA board that I'm sure they'll control?
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  • Rick Trivedi
    Real Estate Broker · San Jose, Dublin CA and Florida · Member since 2017 · 165 posts · 48 votes
    5y

    @David L. - Thats pretty rare that the syndicators would have paid significantly higher than individual - doesnt add up. But logically speaking, it certainly makes sense to sell it to them since typically they would upgrade units and surroundings to get better returns on their investment. 

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  • David L.
    OP
    Charlottesville, VA · Member since 2014 · 37 posts · 8 votes
    5y
    Originally posted by @Rick Trivedi:

    @David L. - Thats pretty rare that the syndicators would have paid significantly higher than individual - doesnt add up. But logically speaking, it certainly makes sense to sell it to them since typically they would upgrade units and surroundings to get better returns on their investment. 

     Thanks for the reply, Rick.  I found it odd, too.  The only thing I could figure might have happened is that the syndicator's purchase of the 70-80% of the units would have been based purely on cap rate, as a commercial deal, and rents seem to have appreciated pretty well at the complex in the last 5 years (25% by one metric) while market forces in general and rates for borrowing capital, in particular, seem to have driven cap rates considerably lower / prices higher, from what I gather (although, I'm not a syndicator currently, on either the GP or LP side, so I really don't know what I'm talking about in this regard).  

    Meanwhile, the relatively scarce individually-owned units are still priced relative to non-commercial RE market forces, including, among a variety of other factors, a lack of traditional financing options for the individual units (because of the predominant non-owner-occupied / single-corporate-owner circumstances within the complex).  So single-unit values have appreciated a little bit over the past few years, but quite possibly haven't kept pace with the run up in commercial valuations.  Again, I don't know if this theory holds water or not, but it's all I could come up with.

    Also, the unit I got under contract was a FSBO and was not on MLS, so it seems to me that the brand new out-of-town buyer of the majority of the complex might not have had visibility to this unit being available for sale...maybe. Then again, another individual unit in the complex just came up for sale in the past 24 hours, this time on the MLS, at a price that also appears very good relative to rental comps, and again considerably lower than the syndicator's average price per unit, so I'm not sure what to think.

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