Classic Example of Value-Add

[Ben Leybovich]

I am excited to announce the sale of Haven on Thomas. This property was a classic example of value add. Posting it here hoping to offer some perspective to you guys.

WhiteHaven purchased the property in February of 2021. This is a 104-unit constructed in 1983, and the business plan was to re-position the asset by renovating it from top to bottom. The CapEx budget was $2.8M, or about $27,000 per unit, and involved complete gut renovations of 100% of the interiors and the office, as well as a total rethinking of the community areas and landscape.

The property operations were in total shambles at take-over, which most groups would consider a bad thing, but for WhiteHaven it was a plus. Between the skips and the evictions, the vacancy at the asset dipped down to 65% at the lowest point, with about $60,000 of vacancy loss. While this put a strain on the operations, we were able to execute unit interior renovations much faster than anticipated, which is always our ultimate goal. The Loss to Lease, which started out at over $39,000 came down to about $8,000 last month, and will be lower in the next financial reporting cycle.

A few months ago, when we realized that we’d be selling, it became necessary to renovate more than 30 units within 45-60 days. The last batch of units was pushed over to the management just a week ago. Great job by Franco, our construction coordinator, and WhiteHaven Construction guys!While occupancy last month was at 70% when we closed yesterday occupancy was up to 93%, with several more move-ins scheduled for the new owner. The MEB team on-site absolutely killed the lease-up.

So, as of the latest reporting from March, the stats were as follows:

Loss to Lease: $8,200

Vacancy Loss: $60,400

Effective Income: $96,800. But now the property is at 95% physical occupancy.

Once the new owner burns through the vacancy loss, their revenue should hit North of $150,000. They stepped into the buying process with us early because they knew that in another 60 days, once the property is 100% stabilized at the new operational level, the price would go up.

So, why did we sell if there were profits to be had? 

Because prior to hitting 18 months, each additional month costs extraordinarily significant IRR, and we knew we'd be able to move our investor's capital into another asset with more meat on the bone, which we are doing as we speak. So, everyone wins!

The final point, our underwriting had us hitting at the end of Y3. But, the property operations being in such miserable condition allowed us to gain access to units much faster than planned, and to finish the project much faster.