An estimated $2 trillion in commercial loans are maturing through 2017, with half under water (or half above water depending on your outlook). That means opportunities for distressed multifamily plays. Case in point: Thorofare Capital just funded a $1.4M acquisition loan for a portfolio of 60 REO for-rent condos in Des Plaines, Ill.

Thorofare Capital SVP Felix Gutnikov (right, with CEO Kevin Miller at RECon last week) says now that CRE values are on the rebound, banks are trying to sell off REO properties to limit overhead and carry costs (like taxes and opex). While fractured condo deals can be difficult to finance due to the complexity of homeowner associations (why do they hate above-ground sprinklers?!), investors are making good returns by collecting rents on some units while potentially rehabbing others for individual sale. Take ST Residentials Apex in LA (below): the tower changed hands in a bankruptcy settlement and ST converted it from condos to high-end rentals.

[caption id="attachment_78178" align="alignnone" ] Photo by Gary Leonard[/caption]

While more money is chasing fewer REO and distressed deals available today, funds and private investors can count on many borrowers in the pipeline being unable to refinance or find JV partners, ultimately handing their buildings back to the banks. Felix says fractured condo dealmakers aren't banking on quick sales or a condo boom unless theyre buying bulk condos, rehabbing, and flipping to another investor. But that method brings lower returns because the risks of renovation costs and leasing are gone. While tricked-out condos in 24/7 markets could sell fast to the young and upwardly mobile, today's opportunities (with less demand putting artificial pressure on price) are in the small balance space ($1M to $15M range), he observes.