PHOENIX, AZ - Thousands of worried tenants and unpaid employees at 13 financially troubled Valley apartment complexes are getting relief from court-ordered receiverships that took over management from a California investor in recent weeks. Threats of utility shutoffs are over, garbage is picked up, grass is being mowed and employees have been promised jobs and salaries but no back pay.
Experts say what happened here, and is happening at nearly 60 Bethany Group-owned complexes across the nation, exposes financing flaws. Investors who bought apartment complexes at the height of the real-estate market and the people who live in them are vulnerable in today's crisis of declining property values and inflexible multifamily housing lending practices. Experts say things could get worse.
Tom Simplot, president of the Arizona Multihousing Association and Phoenix vice mayor, said lenders are required to mark down investment portfolios when apartment values decline. It's a move that could force foreclosures for investors who bought at the market's peak, even if they never missed a loan payment. The practice is unheard of in the single-family housing market, and Congress needs to stop it, Simplot said. If it doesn't, the Valley and the nation could see more multifamily foreclosures and upheavals in tenants' lives.
Bethany Group, an Irvine, Calif.-based apartment investor that purchased 12 of its 13 Valley properties in 2007 for $428 million, abandoned their properties in January and February, leaving employees without paychecks for weeks and residents concerned about lax maintenance and overflowing trash bins. Before receivers took over and paid the bills, Glendale and Phoenix had notified tenants in some complexes that their water was going to be shut off. Most of the complexes were overgrown with weeds, and dirty pools were closed.
"Bethany walked off without notice, and for a judge to appoint a receiver on such short notice like this was extraordinary. There were health and safety issues," said Bill Hoffman, president of San Diego-based receiver Trigild Inc. Trigild took over 13 of the Bethany-owned complexes in several cities about two weeks ago, including seven in the Valley. California-based 707 Management Services Inc. took over a number of other Bethany properties in Maricopa County, said Laura Smith, former Phoenix-based regional vice president for Bethany Group. Messages left for 707 Management representatives were not returned.
Employees at several Valley complexes had reported they haven't been paid since December, and Hoffman said one of his first actions was to secure $500 emergency checks for each worker. All will have jobs with new management companies but may not get back pay, he said. Cameo Dawn, manager of the 480-unit Coves at Newport in Glendale, said 707 Management hired all the employees who had been working without pay and gave them generous "sign-on bonus" checks. "We are very pleased," she said.
Benjamin Graham, a maintenance supervisor at the Bethany-owed Granite Bay apartments in Phoenix, said he has not yet received money but workers were told they will get a paycheck later this month. "It's been a real rough road for employees, but everyone has hung in there. I've never been late, never missed a day," he said.
Hoffman said the workers were more victimized than the tenants in this situation. "These employees went above and beyond what they were supposed to do and they took a horrible beating," Hoffman said.
Michael Eggert, a tenant at Alante at the Islands in Chandler, said he recently renewed his lease and wants to stay but hopes employees get the back pay they deserve. "We paid our rent; where did the money go?"
Some tenants have inquired about security deposits, but Hoffman said they can expect bad news. Unless Bethany Group held those deposits in a separate account and turns the money over to the court, it won't be returned to tenants. Arizona's Residential Landlord and Tenant Act does not require that these funds be kept in a separate account, said attorney Stan Friedman.
Receivership gives lenders a court-appointed third party to preserve and liquidate assets during foreclosure. Hoffman said multiple lenders and receivers are involved with Bethany-owned properties in the Valley and across the country.
Hoffman, who has been in the business for 30 years, said the Bethany takeover is one of the largest he has seen, but not unexpected in today's economy. Investors "bought too much and leveraged too heavily. They couldn't sustain it." Owners are now finding their properties are worth much less than what they paid for them.
It's unclear what happened in Bethany's case; CEO Greg Garmon did not return phone messages left at his home and office.
Thomas Bade, a Phoenix commercial real-estate agent who negotiated one of the sales to Bethany Group two years ago and is familiar with the others, said the deals comprised one of the largest portfolios in state history at a time when real-estate prices, and apartment rents, were at their peak.
Declining real-estate values, competition from single-family home rentals and higher vacancies in complexes that catered to undocumented immigrants who have been leaving the area in response to tougher immigration enforcement likely contributed to Bethany Group's problems, Bade said.
Although Bethany is required to turn over financial records to the receiver, Trigild doesn't have them yet and doesn't even know what rents tenants have been paying, Hoffman said.
The Valley apartments will likely be sold in a foreclosure sale but residents who pay their rent will not be forced to move, Hoffman said, adding, "I want these people to stay and I want them to be happy." Maintenance will resume but it could be slow as the large properties have endured months of neglect, he said.
Source: AZcentral.com