Recently Built D.C. Apartments, Bankrupt And In 'Dire Condition,' Sell For $7M
A 6-year-old apartment building near Northeast D.C.'s H Street corridor has a new owner after developer Habte Sequar was foreclosed on and filed for bankruptcy.
A partnership led by Ernst Equities paid $6.8M to acquire the 49-unit Havana apartment building at 1219 K St. NE, Ernst Equities Managing Partner Felipe Ernst told Bisnow.
Ernst partnered with Earning Housing Development Co. and MCN Build on the acquisition, and the team received a $5.7M loan from Industrial Bank along with the deal, according to documents filed with the D.C. Recorder of Deeds. The sale pencils out to $139K per unit, but it doesn't include the land, as the building is owned through a ground lease.
The five-story property was less than 50% occupied at the time of the sale, and Ernst said it had been poorly managed. He said his team plans to invest $1M to renovate it.
"We’re really trying to rectify the dire condition the building’s in right now and restore the potential of this 49-unit new construction in an incredibly booming neighborhood," Ernst said.
The sale came after lender Wesbanco filed a foreclosure notice and affidavit in September 2022 on an affiliate controlled by Sequar, the property's developer. The next month, the entity with which Sequar controlled the property filed for Chapter 11 bankruptcy, court records show. This sale was part of that bankruptcy process.
Sequar didn't respond to Bisnow's request for comment.
This is the second new development that Sequar has lost to foreclosure this year. The Holiday Inn Express he built at 317 K St. NW in Mount Vernon Triangle sold at auction in April to Peachtree Hotel Group, the Washington Business Journal reported. An entity Sequar controls that owned the hotel property filed for bankruptcy in February 2023.
Sequar developed the Havana apartment property in 2018 and, shortly after completion, sold the land under the building through a ground lease transaction. The property being controlled through a ground lease made doing a deal more complicated, said Marcus & Millichap Senior Vice President Marty Zupancic, who represented Sequar in the sale.
It was also made difficult by high interest rates and a thin buyer pool. Zupancic estimated demand for buying D.C. apartments has fallen by 75%.
"It’s an extremely tough environment to get any deal done, and this having a ground lease and being in bankruptcy and the surrounding issues made it difficult to bring this across the finish line, but the team surrounding the situation and the buyer being a problem-solver helped this tremendously," Zupancic said.
The property's ability to find a buyer was helped in part by its location. It sits two blocks north of H Street Northeast and about a half-mile from Union Market, an area that has seen a wave of new restaurant openings.
"The vibrancy of Union Market with Pastis opening up, La Cosecha and everything Edens is doing with Union Market, coupled with the H Street corridor and all the development happening, that’s what really led us to this," Ernst said.
The area has also seen a surge of new apartment construction over the last several years, but three of the buildings have now faced distress.
The Lanes at Union Market building sold at auction for $38M in May after developer Ranger Properties went into foreclosure, and Urban Investment Partners' Tribeca NoMa was scheduled for a foreclosure auction in May and sold to MF1 Capital last month.
"It was my most difficult deal, and I’ve done hundreds in D.C. — TOPA deals, bankruptcy deals, everything under the sun," Zupancic said. "This one was the toughest I’ve had to close."
