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Receiver Sets Liquidation Plan for $220 Million Multifamily Portfolio

Jacobsons' Former 34-Property Multifamily Portfolio Going to Market
May 8, 2013
John A. Beckstead, the receiver for defendants Management Solutions Inc. and the multifamily assets of Wendell A. Jacobson, his son Allen and other related entities, has filed a liquidation plan proposing to break up the multifamily portfolio strewn across the Midwest and Texas that was once valued at $220 million.

Rather than selling the entire portfolio in bulk, as he once considered, Beckstead plans to break up the sale of Jacobsons' 34 properties into two bulk portfolios while seeking to sell 14 properties individually as one-off transactions.

In December 2011, the Securities and Exchange Commission obtained a temporary restraining order and slapped an emergency asset freeze on a $220 million real estate based offering after bringing a complaint alleging a Ponzi scheme orchestrated by the Jacobsons through Management Solutions and over 200 other entities controlled by the Jacobsons.

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In addition to the asset freeze, the court appointed Beckstead as receiver to sell the assets.

The SEC complaint alleged that the Jacobsons solicited investors by using their memberships in the Church of Jesus Christ of Latter-Day Saints to solicit and win over the trust of prospective investors. The complaint further alleged the Jacobsons were suffering significant losses and were merely pooling the money raised from investors into large bank accounts and using some of the money to pay family expenses and the operating expenses of their various companies. They also were allegedly paying earlier investors with funds received from new investors in classic Ponzi scheme fashion.

Wendell Jacobson settled complaints with the SEC this past March without admitting or denying the SEC's findings. Jacobson agreed to sanctions including not associating with any broker dealer firm or participating in their offerings.

Beckstead is consolidating 15 of Jacobson's former multifamily properties into a single portfolio consisting of properties of relatively high quality and/or located in attractive markets to be sold in bulk.

A second portfolio, which will contain five properties located in the Columbus, OH, market, will also be sold as a package separately from the 14 individually offered properties.

Some of the properties are subject to claimed tenant in common (TIC) interests of non-receivership parties. Beckstead intends to seek the consent of the holders of the claimed TIC interests to allow him to sell 100% of the interests in these properties.

Beckstead had an analysis of possible marketing strategies for the multifamily apartment properties performed by Alvarez & Marsal Real Estate Advisory Services. This analysis included consideration of various sale methodologies to determine which approach would yield the best return.

Alvarez & Marsal recommended this structure to insure the best overall price by preventing "cherry picking" of the best properties and leaving the less desirable properties to be sold at a distressed price. It also concluded that this strategy would yield higher proceeds than selling the properties individually, would have lower execution risk, lower transaction costs, and likely a shorter marketing period.

According to Alvarez & Marsal, the most likely buyer for the first portfolio is an institutional or private client or a REIT. The second portfolio is expected to attract institutional and private clients with a regional and/or local focus. Buyers of the 14 individual properties are expected to be smaller, local or regional players and range from individuals to private family trusts and high net worth individuals.

Beckstead intends to engage real estate brokers to assist in marketing the assets.

National Portfolio:
Cleborne Terrace in Cleborne, TX
Dezavala Oaks, San Antonio, TX
Oak Hill, Beeville, TX
Providence Estates, San Antonio, TX
Pryor Creek, Pryor, OK
Reese Road, Bartlett, TN
Retema Ranch, Universal City, TX
Retreat at Stonebridge Ranch, McKinney, TX
Stonebrook Idaho, Rexburg, ID
Stonebrook Idaho/Tetonian, Rexburg, ID
Stonebrook I & II, Baytown, TX
The Charlestonian, Lake Charles, LA
Toscana, Lewisville, TX, and
Wyndsor Court, Allen, TX.

Regional Portfolio
Abbie Lakes, Columbus, OH
Brooksedge, Reynoldsburg, OH
Jefferson Chase, Blacklick, OH
Reserve at Abbie Lakes, Canal Winchester, OH, and
Stonebridge, Blacklick.

Properties to be sold individually
Buffalo Run, Oelwein, IA
City View, Red Oak, IA
Lake Ridge, Hilliard, OH
Lakes Edge, Pickerington, OH
Lakeshore Village (Goodfellow Housing), San Angelo, TX
Madison Chase, Childress, TX
Meadow Walk, Arkansas City, KS
Seneca Place, Storm Lake, IA
Smokey Trail, Limon, CO
Summerwind, Mesquite, NV
Sunbury Ridge, Columbus, OH
Town Plaza, Beeville, TX, and
Valley View, Shenandoah, IA.

One former Jacobson property, Garden Terrace in Gadsden, AL, was scheduled to be sold at public auction due to its distressed condition.

Jacobson also controlled two office buildings in Utah, which will also be sold, Discovery Point Office Building in Lehi and Discovery Grove Office Building in Pleasant Grove.

Keep up weekly on national news, trends and property leads with the Watch List Newsletter, a weekly pdf that includes other news and leads not found on the CoStar Group web news pages. Sign up for the Watch List E-Mail Alert. A new issue is published late each Wednesday.

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