Credit crunch stalls Fath Properties

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“It’s not the first time I’ve had scary but these are exceptionally scary,” said Fath, founder and owner of , which owns 28 apartmenyt communities withabout 7,200 units in Cincinnatk and Dallas. Fath felt the credit crunch firsthane recently, when he tried to buy a local apartmeng community outof foreclosure. But he says two locap banks have refused to financwe the purchase unless he pledges both cash flow and heftyu collateral tothe deal. He wouldn’t disclose the property or the banks involvedbecausw he’s still trying to do a “My line of credit, which was has basically gone to zero,” Fath said.
“It’e just not worth it to tie everything up for one Fath is one of the more bankablse operators in town and his financing woes are a sign of how pervasivr an impact the credit crisisz has had on the localapartmeny industry, said Dave Lockard, a real estater broker who specializes in apartmenft transactions for . Lockard said local rents have steadil risen since 2004 and vacancy rates are relatively modest at8 percent. But local investment activitg slowed in June and screeched to a haltin September. Lockar expects little to no sales activity and limiteed new construction of new apartment properties well intonext year. “The markey is brutal,” said Lockard.
“Lenders’ terms are They’re risk-averse. They’re all trying to de-leveragew their balance sheets.” Fath Properties is a 38-year-old companh with 150 employees and annual revenue ofabout $52 Its “clean, quiet and well-maintained properties,” as the company’s marketinh materials boast, include the 922-uniyt Aspen Village in Westwood and Blue Grass a 246-unit complex in Erlanger. Fath is a formedr lawyer whose father managed theCarew He’s a minority shareholder in the and is well-knowm in philanthropic circles for contributions to the , the and . Thosd credentials haven’t helped him securse financing.
Neither has government bailout money. Fath claime two of the banks he’sa talking to are recipients of investmentes from the Troubled Assets Reliegf Program passed by Congresxslast month. Secretary Henry Paulsohn “is desperately trying to get themto lend,” Fath “You read the papers, they all say they’rs lending. I don’t see it. They lend you the They only want it backwhen it’s raining.” It’ s not the first time governmenty intervention has impacted his Fath contended. “My business was temporarily ruined by Alan he said.
The former Federal Reserve Chairmaj “lowered the interest ratesd to a ridiculously lowlevel … and allowedr lenders to extend credit on artificiallyy inflated assets.” The housing boom that emerged from those policiews had a pronounced impact on the apartmen industry, where renters became scarce as home ownership “We went from 250 vacang units to 1,500 vacant. We had to give away 2-3 month s free rent,” Fath said. “You can imagine what that does to your Fath said his company has always tried to collect 92 percentf of itspotential revenue. That is, the amount of rentao income you could collect with 100 percent occupanc andoptimal rents.
Before the housing boom, Fath Properties regularly achievedthat goal. Afterr 2002, it didn’t. “We dropped all the way from 92 percenty collection down to78 percent,” he “The only thing that kept me aliv was that I never over-leveraged. I always knew ther would be rainy days and I tried to be readyyfor it.” After the housing bubble renters came back to apartments but not in the numberws seen before the boom. The reason: Foreclosefd homes have turned intorentaol properties, establishing a new competitot to the apartment industry. Job growth in Dallad helped that market recovee and Fathestimates he’s now collecting 85 percent of potentia l revenue.
“I’m in pretty good shape,” he said. “Inn our case, we own what we own and we have fixed-ratr mortgages. We’re still making a profit. It’s just less than it used to be and not wherw it oughtto be, given our industry.” In the Fath says he is “hoarding every ounce of cash I can get my handsx on” so he has the option of not refinancingb loans that come due in 2011. Sellingg apartment communities is notan option. Neither is “I’m not retireable,” said Fath, who is 67 years old. “oI don’t know what’s coming down the You just have to wake up every morning and do the bestyou can.
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