Carlio Davis returns to his apartment after fetching the mail at The Preserve at Southwind.  Photo: Lance Murphey

Because loan defaults are a common occurrence in this difficult financial climate, last week’s news that the 306-unit Preserve at Southwind Apartments had been foreclosed could easily be chalked up to a case of “another one bites the dust.”

But this latest victim in a rash of multifamily foreclosures has a decidedly different look and feel.

The complex, which will be sold at an April 30 auction on the Shelby County Courthouse steps, belies the normal trend of an apartment property being in a poor, blighted neighborhood with an ineffective owner.

The Preserve is a 10-year-old, Class A complex in a high-demand area near Hacks Cross Road and Tenn. 385 in Southeast Shelby County.

And its majority owner, Montvale, N.J.-based Empirian Property Management Inc., manages a large apartment portfolio: the Preserve at Southwind, Colonnade (Germantown), the Villas at Cordova and Waterford (Memphis).

Still, a deeper look into the local multifamily market reveals an eye-opening trend and sheds some light on this recent foreclosure.

At least half of all high-dollar apartment sales are falling under some sort of “distressed” heading.

Distressed could be either in appearance (poorly maintained) or economics (poorly managed).

Of the 22 multifamily properties sold during the past year at $1 million or more, 13 were sold by a lender or a trustee following a foreclosure or to avoid a foreclosure, according to real estate information company Chandler Reports, www.chandlerreports.com.

Of the four properties sold at $5 million or more, two were distressed.

Steve Woodyard, president of Woodyard Realty Corp., said the current dynamic of these multifamily properties going under isn’t necessarily a function of bad condition or management, but rather a sign of the economically challenging times.

“We’re seeing some good properties right now that are having difficulties getting refinanced,” Woodyard said.

Blake Pera, senior vice president of CB Richard Ellis’ multifamily division, said Memphis’ Class A properties haven’t been hit as hard as other markets and that

Class A distress here can be attributed to “borrower issues.”

But, he said, there’s no denying that a majority of the sales last year and continuing through 2010 are REO (real estate owned), meaning the original lender sold the property following an unsuccessful foreclosure auction.

“Inherently, these properties are performing at levels below the market, and buyers are able to buy at discounted levels compared to market value,” Pera said. “There has been a flood of new equity to the market for distressed multifamily product because these buyers know

that upside can be achieved by putting in the required capital to stabilize the asset and operating it with professional management.”

Woodyard said properties now distressed – either physically or financially – will be attractive to cash that previously has been “parked on the sideline.”

“It’s going to present some absolute incredible buying opportunities,” he said. “There’s going to be the opportunity to pick their markets. It’s going to be a shopping spree.”

The Preserve at Southwind might be unique in its status as a Class A multifamily foreclosure, but it’s hardly alone in being sold on the courthouse steps.

For example, the owner of the Bella Vista Apartment Homes at 3316 Hickory Hill Road was foreclosed late last year.

A new owner emerged in January, spending $7.5 million on the property, which had sold less than three years earlier for $10.9 million.

Also, Philadelphia-based Resource Real Estate Inc. paid $9.5 million for the Wyndridge Apartments in Hickory Hill North in a special warranty deed.

The complex was an REO property sold by the original lender following an unsuccessful foreclosure auction.

Even a high-profile Downtown property faced the ignominious fate of the auction block when the Exchange Building at 130 Madison Ave. sold for a fraction of its value in a successor trustee’s deed last month.

The historic property sold for $1.9 million to Northwest Capital Group Inc., an affiliate of lender Warren, Pa.-based Northwest Savings Bank, which foreclosed the building in February.

Another high-dollar apartment complexes that sold under distressed circumstances include the 378-unit Waterstone Landing Apartments at 5995 Waterstone Oak Way, which Resource Real Estate bought for $5.7 million.