An East Coast private equity group is scooping up distressed and bank-owned condominiums in bulk in the Twin Cities, saying it’s so confident in the area’s economy that it will roll out its own mortgage program to make loans to qualified borrowers wanting to buy.
Point Capital Partners, based in Chatham, N.J., said it’s sinking about $70 million into four Twin Cities condo deals, two of which already have closed.
“We’re making a big bet on Minneapolis,” said Drew Preston, who manages Point Capital’s real estate fund. “The underlying economic trends that we’ve seen in Minneapolis are some of the strongest we’ve seen in the United States.”
In its most recent acquisition, Point Capital Partners bought the 77 remaining condos in the Sexton Lofts in downtown Minneapolis from owner Andy Chase. That deal closed March 24.
Chase, president of Burnsville-based Chase Real Estate, bought 74 of Sexton’s unsold units — more than half the building’s 123 units — out of foreclosure one year ago for about $4.5 million. He then bought three more units, added a new heating system and has been finishing off the conversion of the old commercial building, including completing the Sexton’s nine rooftop penthouse units. The work should be done in two months.
“We got a lot of stuff accomplished and now I think it’s time to go to the next level,” Chase said.
Preston wouldn’t say what he paid for the Sexton units, but said “we paid a significant premium” over the $4.5 million Chase paid.
The sale marks a bold new chapter for the Sexton, which has been clouded by the mortgage-flipping scheme that surfaced there in recent years. The scandal produced multiple convictions. Brett Thielen, a first-time developer who tried to complete the project, is serving a 27-month sentence for helping orchestrate the swindle.
The Sexton was Point Capital Partners’ second Twin Cities buy.
On March 17, the private equity group bought the 90 unsold units at the Gramercy Club of Edina — another well-known project with a tortured past — from Beal Bank Nevada. Point Capital plans to convert the senior co-op into condos, he said.
The group is scheduled to close next week on another bank-owned condo building in the Twin Cities, and has a fourth investment lined up, one that Preston called the largest. He declined to name the other two developments.
Little has been written publicly about Point Capital Partners. But according to its website, it’s a family of merchant-banking companies founded in 2003 and its private equity unit makes alternative investments in areas such as energy, health care technology and distressed real estate. It is principally owned by two classmates from West Point, from which the firm takes its name, Preston said.
Banks are generally unwilling to make mortgages for condos in buildings with heavy concentrations of units in foreclosure or that are sitting unsold or rented out, Preston said. The group aims to stabilize the troubled condo projects by providing financing so they can get the units sold at market rates.
“I’m not a fire-sale guy,” Preston said. “The value of the properties is dependent on the financing.”
Preston said his group will start listing five to 10 of the Sexton units next week.
“Minneapolis has great underlying demographics,” he said. “There’s a demand out there for this product.”
Mary Bujold, head of real estate research firm Maxfield Research Inc. in Minneapolis, said Point Capital’s type of financing play isn’t unheard of, but it’s the first time she’s seen it in the Twin Cities during this boom-bust cycle.
“Ultimately, I think it’s a smart move on their part,” she said. “It’s not really speculative as much as it’s kind of opportunistic.
By JENNIFER BJORHUS, Star Tribune