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Updated over 4 years ago on . Most recent reply
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350 unit new construction - competition or upside?
Hey you all. I am under contract on a 24 unit Class C building (one bedrooms and two bedrooms). The owner has been self managing and the property is messy and any work done on it has been "half-***" The building has good bones and with an exterior and interior (per unit) rehab this can be a nice Class B building. The plan is to raise rents from an average of $590 to $715 over 24 months as we do the rehab. Contract price is $1.1M with an additional $300K for rehab. A value add from rehab and professional management.
We just heard that the city just approved a 350 unit apartment building about 2 blocks away. These are going to be Class A with expected rents starting at $850 (studio) to $1600 (2 bedrooms). Construction to start in 2021. There is also a newly remodeled retail location nearby that has a couple vacancies (not sure how long these have been on the market).
The lender we wanted to work with backed out because of this issue. My question for you all: how would you assess our current situation? Our property is in a suburb that is seeing expansion from (Kansas City). It seems that our property after rehab will be B class so won't go after the same demographic as the new apartment complex. Is it a concern that we will be marketing to tenants who can't afford the new "shiny" development (with community center, fitness, etc)? Appreciate any advice on how to think through these issues.
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@Carnet Williams Your thinking about the new construction property not being competition is absolutely correct because both properties will be competing for different tenant bases. If anything, as more new construction occurs, it'll allow you to push rents at your property because it'll leave less non-luxury apartment units in the area, meaning that demand will be greater for the product that you're offering.