Investors Arvind Reddy and Krishna Persaud sold a multifamily complex in Pompano Beach for $24.1 million, marking an 8 percent loss from what they paid a year ago.
The deal comes as the South Florida multifamily market has taken a turn from the boom times of 2021 and early last year.
Property values dropped this year following a rise in financing costs, caused by the Federal Reserve’s increase in interest rates. Investors who scooped up apartment complexes at the height of the market are now seeing their plans for a windfall unravel.
Reddy and Persaud sold the 124-unit Amberstone Apartments at 470-530 East McNab Road to
Havertown, Pennsylvania-based Woodward Properties, according to records and real estate database Vizzda.
The purchase breaks down to $194,400 per unit. That’s less than the $212,000 per unit price Reddy and Persaud had paid in May of last year.
Reddy and Persaud bought Amberstone for $26.3 million, with a plan to spruce up the property and increase rents. They took out a $21 million loan from The Bancorp, maturing in 2025 with a two-year extension option.
The sellers weren’t in trouble with their loan, as they had enough cash flow to meet payments and a cap on the floating-rate debt, Reddy told The Real Deal. They completed their value-add plan and pumped $500,000 in capital improvements, alongside “even better than expected” rent growth, Reddy said. The property is nearly fully leased.
Amberstone, completed in the early 1970s, consists of eight two-story buildings on 4.2 acres, Vizzda records show. It offers units ranging from studios to two-bedroom apartments, with monthly rents from $1,649 to $2,189, according to Woodward website.
But Reddy and Persaud sold before their originally planned three- to five-year hold period. The rise in debt interest and property cap rates could continue, further devaluing apartment real estate in the coming years. Even if they do score a gain from selling a few years from now, it would be insignificant due to inflation.
“It’s taking a little loss now versus taking a bigger loss in the future,” Reddy said. “We just didn’t see, given where the market is going, as successful of an exit as we originally planned.”
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South Florida multifamily values have dropped from 15 percent to 30 percent, year-over-year, brokers told TRD. While that’s been bad news for sellers, it’s opened the door for well-capitalized buyers to swoop in.
Firms with discretionary funds have seized on the drop in values and their ability to use already raised equity, instead of expensive debt, to scoop up apartments.
Praedium Group, through its $728 million Fund X, in July bought the 348-unit Manor Lantana complex at 861 Water Tower Way in the Broward County city for $138 million.
That same month, Harbor Group International swooped in on Palm Beach County. Through its opportunity fund, Harbor paid $105.5 million for the Locklyn West Palm complex at 3590 Village Boulevard and $75 million for the Pine Ridge apartments at 6200 Wallis Road.