Dissecting the Dist
ress: Case Study
The casualties of the capital markets fallout
are beginning to emerge. Yet as the strife
between lenders and borrowers intensifies,
there is one group of winners by
“default”: distressed receiverships.
AN APARTMEN T INVESTMENT COMPAN Y THAT BUILT
up a considerable portfolio during the halcyon days of the capital
markets is now seeing its fortunes crumble as the financial industry tanks. Bethany Holdings Group, an Irvine, CA-based umbrella
firm that specialized primarily in value-add
multifamily
plays, is now seeing the bulk of its residential property portfolio
dispersed to a handful of distressed receiverships.
Bethany invested in its first property in 2004. Over the next
several years, the hyper-liquid financing environment allowed the
firm to snap up some rather large portfolios. In 2006, the company got a $159-million loan from GE Real Estate to buy and renovate a 2,873-unit portfolio of properties in Florida, Texas and
South Carolina it acquired from Aimco, an apartment REIT. The
following year, Bethany was able to reduce its capital costs and
replace that floating-rate debt with another GE Real Estate loan—
this time for $156.5 million. That five-year, fixed-rate, interest-only debt included a $130.5-million CMBS A-note and a $26-mil-
lion mezzanine note that GE held on its own books.
Also in 2007, Bethany set records in Arizona when it shelled
By Sule Aygoren Carranza
out $427.5 million to Greater Phoenix Bascom Arizona Ventures
LLC for a 12-property, 5,178-unit portfolio. The firm planned to
spend another $50 million in upgrades to the communities over
the next couple of years. At the time, the package was about 91%
occupied. Bethany funded that purchase with a kick-in from a
private equity investor, as well as 90% financing from Lehman
Brothers and a 20% mezzanine piece.
Within five years of its initial buy, Bethany had grown its holdings
to more than 15,000 residential units in 60 communities across the
US that it held through several subsidiaries and affiliates.
A look at the firm today tells an entirely different story. Having
filed for Chapter 11 bankruptcy protection, the company revealed
that it had to walk away from most of its properties, many of which
have since been deemed abandoned by the court system and
handed over to a collection of receivers that will manage the communities until the lender officially forecloses on them. The
Bethany Group website has been taken down and calls to its headquarters, local offices and even property managers go unan-swered or straight to a full voice mailbox.
After several attempts, Bethany Group CEO Gregory P.
Garmon responded to queries. The executive maintains that
while there’s no denying there were problems, “abandoned” is
