Many real estate investors have been anxiously awaiting a wave of distressed deals to flood the market, ready to snap up properties for pennies on the dollar.
However, while distress has risen in many commercial property sectors, the expected wave of bargain bin discounts hasn’t materialized as many expected.
Kicking things off
If the distressed property deal wave does eventually arrive, a recent acquisition by Dallas-based real estate private equity firm Reap Capital may be a starting point.
Following the previous owner’s foreclosure, Reap Capital recently acquired an 854-unit North Dallas/Plano multifamily portfolio at a steep discount. The company entered a rare joint venture agreement with the lender, taking the lead as operator.
“A company like ours rarely partners with a lender like this. It’s a very unique structure for a deal,” explained David Lilley, CEO and Founder of Reap Capital. “There are a select few borrowers in our shoes, and we’re just lucky to be in this situation and have a good relationship with the lender.”
Deal details
The joint venture is Reap Capital’s first deal of this type, and it originated even more unusually. The lender made a direct phone call to Lilley and bypassed a public listing.
Reap was chosen due to its exemplary relationship with the lender and for meeting several key criteria, including a history of owning and managing properties in the Dallas/Fort Worth area, as well as in-house property management and construction capabilities.
All three of the multifamily assets are in the Dallas-Fort Worth metroplex. At the current purchase price, these properties are discounted 15% from their previous sale, while the discount from nearby sales comps is 35% lower.
Lilley expects more deals like this to materialize if a significant recession occurs. For now, Reap Capital finds itself in a unique position and is ready to take advantage of any upcoming opportunities.
“Lenders are still generally extending maturities and kicking the can down the road,” Lilley said. “But some lenders are reaching the end of their patience, leading to select foreclosures, which happened with this deal. Very few companies are in our position, and we’re ready to capitalize on it.”
About Reap Capital
Since its founding in 2017, Reap Capital has returned an average of 32.25% IRR to investors by leveraging its holistic buying, managing, and development strategy, which resulted in three profitable exits in 2023. The company specializes in acquiring and rehabilitating distressed assets and has sponsored the purchase of nearly 2,000 multifamily units valued at over $220M. While Reap Capital has also invested successfully in Arizona and Florida, its main focus will continue to be its home base of Dallas-Fort Worth.
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