117-Unit Value-add in Phoenix Closed Today

[Ben Leybovich]

Ladies and Gents,

We don't do too many deals, but when @Sam Grooms and I do a deal, it's something special.

Today we closed on 117-unit in Phoenix's South Mountain neighborhood. The complex is named South Mountain Square. 

Some Details:

• Purchase Price:  $10.75M
• Reno Budget:  $1.5M
• Per sq.ft. Blended Price:  $140/sq.ft.
• Financing: 70% LTV on the PP and 100% LTV on the Reno
• Equity Raise:  $4.5M
• Unit Mix: Essentially 50/50 of 1x1 and 2x2
• Value-Add: $300 per door +
• Going-in Cap Rate on T12: 4.1%
• Cap Rate projected by end of Y1:  5.2%
• Cap Rate projected by Y3:  8.25%
• 5-year target IRR: 17%+
• 10-year target IRR: 14%+
• In-place LTL to reno Bump Ratio:  About 65/35

I want to thank our many partners in this deal. I am very bullish on this acquisition. We will do very well at South Mountain Square.

Feel free to reach out if anyone has questions.

[Sam Grooms]

To give you an idea of how conservative we underwrite, even with the $300 increase in rents: 

We met with the new manager at the property this morning, and she says our post-renovation rents need to go up another $50 on the 1x1s. We knew that going in, but it provides an additional $700K of upside to help us outperform. 

Don't be too aggressive with your underwriting; give yourself some cushion.