An Arizona court of equity has cleared the way for a 3,000-unit, seven-property apartment portfolio previously operated by the Bethany Group to be sold out of receivership, says Bill Hoffman, president and founder of San Diego, Calif.-based Trigild, the corporation that was appointed receiver of the properties last September.

“They are all nice properties,” says Hoffman of the Phoenix portfolio. “We’ve had a lot of offers, there is a lot of interest in the portfolio, so from our perspective, it is a done deal. You can lift the flap and close the envelope. We are preparing for the sale(s) now and hope to close escrow in the next couple of weeks.” At issue was whether or not receivers were entitled to sell property in the state of Arizona. While some states specifically permit or disallow such sales, Arizona law is silent on the subject.

The sale of the properties marks yet another asset loss for the Orange County, Calif.-based Bethany Group, which saw its portfolio fall into non-cash default in March 2009. In January, a U.S. Bankruptcy Court approved a $400 million sale of 5,000 Bethany units across 16 properties in Texas and Maryland to Standard Portfolios for $400 million.

Although the Bethany Group’s exposure to extremely volatile real estate markets—including Florida and Phoenix—prior to the onset of economic recession played heavy into the firm’s collapse, not all Phoenix landlords and multifamily investors ended up feeling the same heat. The Irvine, Calif.-based Bascom Group, in particular, found success with extreme cost-cutting measures coupled with resident outreach in the most distressed markets of its portfolio, including Phoenix. As skips and delinquencies went on the increase, Bascom sought to offset vacancy numbers by sponsoring financial workshop, tax assistance, and even fitness and free lunch programs at affected properties.

Bascom also better timed its market moves in regard to exposure to distress. "We sold out of Phoenix in summer 2007 and it was the largest transaction in Arizon history at $427 million," says Bascom vice president of acquistions Jeff Fuller. "Additionally, we have been net sellers in Orange County over the past five years. That has allowed us to now be on the offensive in both of these markets."

As of late, Bascom has instead focused on acquiring properties out of distress, most recently getting its hands on the Maples at Crestwood Apartments, a 300-unit community in Denver for $7.9 million as the result of a distressed lender foreclosure sale. The property, which previously sold in 2002 for $19.4 million, expanded Bascom's Denver portfolio to 21 properties totaling 7,500 units. “We love Denver, and we are continuing to buy there,” Fuller says. “We are still trying to grow in that market."

Some firms additionally found their way out of Grand Canyon State distress via a middle-ground route of bankruptcy followed by recapitalization. On August 2, San Diego-based Fairfield Residential—which also owns Phoenix assets among its 55,000-unit portfolio of apartments under management—emerged from Chapter 11 protection. A recapitalization courtesy of Toronto, Ontario-based Brookfield Asset Management and the California State Teachers’ Retirement System (CalSTRS) will pump $29 million back into Fairfield. As part of the recapitalization structure, Brookfield has acquired a 65 percent stake in Fairfield and will commit up to an additional $150 million to Fairfield for acquisitions and other growth opportunities on a deal-by-deal basis, according to Brookfield senior vice president of communications and media Andrew Willis.

In a statement, Fairfield CEO Christopher Hashioka lauded the recapitalization, and anticipated new market investments in short order. “Our recapitalization and partnership with Brookfield and CalSTRS has put us on solid footing for building our business and positioning us to take advantage of exciting growth opportunities,” Hashioka said.

"Following Fairfield's recapitalization, we are strategically focused on construction, property management, and asset management of multifamily residential homes with the opportunity for growth through acquisitions, joint ventures, and development," says Fairfield spokesperson Deborah Sollohub, noting that less than 2 percent of the Fairfield portfolio was divested during the reorganziation.

"Any divestures that occurred though our reorganization were overwhelmingly supported by our creditors," Sollohub adds. "The bankruptcy court itself cited the extraordinary effort that went into our developing a successful reorganization plan in the current economic circumstances, and we are excited to work with Brookfield Asset Management building on our respective experience in real estate services and property management."

Hoffman says the Arizona decision should set the precedent in that state for distressed sales of multifamily asset by receivers. “It’s a huge deal for special servicers. Obviously the recovery is much better than [going through a foreclosure sale],” he says. “Receivership sales can transpire in weeks compared to the months-long or more process of foreclosure. It is a very clean way to sell the property, presuming you can get the court to agree first.”