Market Opportunity

In mid-2013, Turnstone identified an opportunity to acquire a note secured by the 420 remaining single family lots in a residential subdivision located in Acworth, GA, a suburb in northwest greater Atlanta. Because of the structural complexity of the ownership, which consisted of 7 separate banks, several of which were subject to FDIC loss-share agreements, the opportunity was not understood by typical buyers of residential land, resulting in a dearth of qualified bidders for the asset. Further, the banks could not agree on funding for developing of lots, risking default of the contact with the national public builder that was active building homes in the project.

Strategy

Turnstone was able to capitalize on the complexity by negotiating favorable terms with the lead bank at pricing that equaled 26% of the then outstanding principal balance of the note and approximately 45% of the in place infrastructure.
Upon acquisition, Turnstone negotiated a deed-in-lieu with the borrower, reestablished the agreement with the national builder, and negotiated a reduction on several of the off-site funding obligations. Further, to stay ahead of the home sales velocity of the builder, a program was implemented to complete the undeveloped phases of the project.

Results

Since acquisition, Centennial Lake has ranked consistently in the top 10 best performing subdivisions in metro Atlanta, based on annul home sales. With a sellout at approximately 82%, the asset has a projected IRR of 59.9% and a cash flow-to-equity multiple of 2.20x.