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There may not be quite the number of distressed commercial properties available across the Midwest as many predicted, but for some savvy commercial pros, there are still plenty of opportunities.

Just look at the case of David Goss and Jon Morgan. The two men have formed Interra Realty LLC, a firm that specializes in distressed multifamily sales in lower income areas.

“We are not El brokers,” says Goss, referring to professionals who primarily work the north side of the city. “Our expertise is on the South and West side.”

The former Essex Realty Group managing directors have worked for years on real estate deals in lower income neighborhoods of the city. In this time, they developed contacts and relationships with all of the major players in this niche market.  As more distressed deals began to materialize, the two realized that their niche had growth potential and it seemed reasonable to set out on their own.

“We saw this market coming rather early,” said Goss.

David Goss and Jon Morgan

Goss and Morgan have completed transactions involving 86 properties in the past 18 months, of which only two of those properties were considered to be at market rate.

Goss stresses that it is not the neighborhoods that have determined the heightened levels of distressed property, but the prevalence of faulty underwriting. For years on the north side, properties traded based on appreciation. It became more common to include projected cash flow in transactions on the south side to make properties more appealing to investors. Obviously, those projections were generally off.

“There were a lot of closed eyes with both buyers and lenders,” says Gross.

While the market slowed to a halt in 2008 and most of 2009, velocity has picked up lately and Morgan says that a healthy crop of buyers are active.

“A lot of people who sat on the sidelines are now seeing the prices that they want,” says Morgan. “We had multiple offers in a recent note sale.”

Typically, distressed deals in low income areas tend to have the reputation of lacking professionalism, but Goss and Morgan hope that their expertise and success will help them carve a substantial portion of the market and dispel such notions, says Goss.

“We sell a multifamily property on the South Side as if we were selling the Willis Tower,” he says.

The pair expects this market to run its course for the next three years. Currently, they work with mainly multifamily properties of 100 units or less, but they see opportunities in the retail sector as well. While the majority of the deals they do are on the south and west sides, the firm has also completed deals in Rogers Park.

Tags | Chicago, Distressed Property, Multifamily, sale

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