Melanie French is no stranger to taking over challenging distressed assets.
The CEO of Dallas-based property management firm RR Living, a part of apartment owner RREAF Holdings, was at Denver-based REIT Aimco during the fallout from the global financial crisis of 2007-2009.
Now we're in another era when managers are often tasked with turning around troubled properties. In fact, the last three properties RR Living has taken over were distressed. Still, French thinks the situation for operators is much easier today than it was 15 years ago.
“I think we are in a better spot now than we were in 2009 — not only because of all of the technology but also the lessons that were learned during that time when people were so far in over their heads,” French, an alum of Atlanta-based owner and operator Cortland and Denver-based REIT UDR, told Multifamily Dive.
While a lot of new faces have entered the multifamily business over the past decade and a half, many industry veterans in management and development are still around. And French said they haven’t forgotten that period.
“The lessons that we learned there, and we've taken them with us, I think that we're better for it,” French said. “You look at who is being foreclosed upon or who is getting into trouble, it is a lot of times those people that came [into the industry] after that period.”
Here, French talks with Multifamily Dive about the types of distressed properties she’s seeing, what kinds of issues they face and where developers should be looking as they build more housing.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: Tell me how you’re handling distressed properties that you’re taking over to manage, whether they’re acquisitions or assignments from lenders.
MELANIE FRENCH: We've created a bit of a niche here for taking over these distressed assets. My approach to those is I put more resources into those distressed ones to turn them around initially. For that reason, we have had some terrific luck in bringing them back up, in some cases taking them from 60% occupancy to 90% occupancy. You manage them differently. You own them differently.
What’s the typical distressed asset that you’re seeing today?
I am seeing 1990s-era properties. I'm seeing some early 2000s. If I look at the product type, it is going to be B and C primarily.
When you take these properties over, what kind of issues are you finding?
Where we've seen them get into trouble is on that physical plant. I don't know if it started with COVID or when it started, but we've seen several where they just did not maintain it. And if you don't maintain it, then the problems that you found when you bought it the first time just get worse over three or four years. So then that puts the owner in a really tough spot.
We are also seeing some refinancing or redoing some loans. There are some 2017-2018 vintage that are being recapitalized so that you can go in and renovate again. We had such an influx of new product that now those communities that are five and six years old actually look aged when they're up against the new product. That's not something we dealt with 15 years ago.
What will these distressed assets do to the sales market?
We think that 2025 is definitely going to be more of a buyer's market than what we saw in 2024. You can look at all of the trends. People are moving for jobs. But you also are now seeing more communities come out that have not been able to make it, and owners who have gotten themselves into trouble.
There are a lot of deliveries in your Sun Belt markets right now. Even with all of that supply in places like Austin, Texas, are there areas you see that still need housing?
For me, it is important that developers focus some on those tertiary markets. When you think about the cost of living and where that cost of living is a little bit lower for people these days, you're seeing that in these tertiary markets.
You mentioned Austin. Look at how much the costs have risen in Austin. They've had that explosion in population. You're going to definitely have development there.
But with so many people needing more affordable housing, there is a shift toward developers going into the tertiary and secondary markets, and they should do that. As we look into the migration patterns, that's where people are moving.
Where else should developers be more focused?
When I look at the market that is the most underserved right now, I think it's our 55-and-over population. I think that generation is having such a hard time now finding affordable housing, and I still believe wholeheartedly that there is a market out there for senior citizens that is very much like student housing. We've got to get to a point where they are willing and able to lease a bedroom and then have that common area.
If you think about that generation, they have limited funds in a lot of cases, especially when one spouse is left, and the other one has passed on. Then they really have to focus on cost. But they also need that camaraderie, and they need to be able to be around people.
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