IN DECEMBER, SAN DIEGO-based Fairfield Residential announced that it was filing for Chapter 11 bankruptcy protection.

Fairfield had been renegotiating with its lenders for more than a year but eventually collapsed under the weight of purchases made from 2004 to 2007. Many of those deals are now under water, leaving the company in violation of covenants with Wells Fargo (which made the loans through Wachovia Corp.) and Capmark Corp.

It was bad buys that did Fairfield in. Real Capital Analytics in New York reported that since 2001, the firm made acquisitions of $6.1 billion and dispositions of $8.8 billion. Fairfield was most exposed with 52 properties in the decimated Phoenix market (which has also caused problems for operators such as The Bascom Group and Bethany Holdings Group). That exposure was magnified by 30 properties in Los Angeles; 30 properties in Seattle; 29 assets in Atlanta; and 20 assets in Denver.

“They found themselves upside down,” says Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council. “Asset values have fallen so far they're under water in terms of what the property is worth versus what they owe on the mortgage.”

The industry buzz is that there won't be a big court-ordered firesale but instead an orderly transition of what could be the entire portfolio.