Starman and partner Francis Clark bought the complex in 2006 from Equity Residential, Chicago-based real estate investor Sam Zell’s apartment division. However, he said, the fundamentals in the Ann Arbor apartment market have changed during the downturn, resulting in lower rental rates that can’t support the loan payments at Hidden Valley. The property - built in 1974 on 15 treed and rolling acres off of South State Street near Eisenhower - is at 90 percent occupancy, Starman said. “We plan on owning (Hidden Valley) for the long term.” “I think it will be resolved,” Starman said. He’s hired CB Richard Ellis to help navigate the process, which he said he initiated in 2009 to stem what he saw as a growing concern. Starman said he’s hopeful that efforts to work with the lender to retain ownership of the property and modify the loan will pay off. The situation - described by some national experts as the next real estate crisis - is likely to be invisible to residents of Hidden Valley, according to local sources. Yet financing through CMBS means that many borrowers, as Starman said, “don’t even know who the actual lender is.”Īnd that puts Ann Arbor’s Hidden Valley Club into the growing mix of properties affected as national CMBS defaults soar to record levels this year. Some strategies that traditional lenders have used with their borrowers include modifying loan balances or terms, allowing interest-only payments and allowing contingency funds to dip below contracted levels. Real estate experts say many commercial real estate owners are facing challenges meeting their lending obligations. “We believe the lenders are swamped with loan issues,” Starman said, “so the process is long.” Other factors include a national real estate climate in which banking consolidations after the lending crisis and the sheer volume of properties in securitized loans - known as Commercial Mortgage Back Securities - is overwhelming the system. The most obvious is the drop in the property’s value as rental rates fell below levels to cover loan payments. So are the circumstances behind the loan default, said Hidden Valley Club co-owner Jeff Starman. The loan itself - which totals $18.1 million - is complicated, since it’s one among billions in real estate investments that were repackaged and sold to Wall Street investors during years of peak real estate prices. Ann Arbor’s Hidden Valley Club apartment complex is a local example of a $70 billion national real estate problem: Securitized commercial loans that are in default.Ī foreclosure notice on the 324-unit complex near Briarwood was filed in late April, despite months of ongoing conversations initiated by the owner to modify the loan.
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