Biggest deal of my life (290 units) as a lead sponsor

[Spencer Gray]

Investment Info:

Large multi-family (5+ units) buy & hold investment in Granger.

Cash invested: $12,000,000

Villas on Fir is a 290 class A luxury apartment community located in affluent Granger, IN, a submarket of the South Bend/Mishawaka MSA. Delivered in 2019, the property features a resort style pool, attached garages for each unit, sand volleyball court, and an acre dog park. Conveniently located 10 minutes from the University of Notre Dame, and 2 minutes from the Johnson County Regional Medical Centre.

What made you interested in investing in this type of deal?

I love a good value add deal, but I decided it doesn't make sense to buy an older asset in an OK location when I'm paying the same cap rate as a like new, or brand new assets in a stellar location. I would rather just buy the newer, nicer, easier to manage property.

The returns, even with conservative underwriting, were strong. The market has been seeing strong population, job, and wage growth with the average household income >$100,000.

How did you find this deal and how did you negotiate it?

The project was sourced through a broker we had recently completed a transaction with. We negotiated by being transparent and honest with what we could and could not do. We were also very upfront about the fact that we had not yet secured the capital. The biggest push back was the seller challenging us that we couldn't complete the raise. We were told "people that were familiar with, Gray Capital and the raise have said you can't raise the equity." Challenge accepted.

How did you finance this deal?

Equity: Combination of individual investors, and partnering with a multi-family office/wealth management firm.
Debt: Bridge to HUD 223(f)

How did you add value to the deal?

We have been able to reduce expenses day one. We also are continuing to burn off concessions, down from $250k this last year to $100k this year, with the plan to reduce them down entirely at some point (although we didn't in our underwriting).

We are also making to management team be more customer service focused. There was an "office vs resident" mentality that was toxic. We let some of the staff go, rehired professionals and are already seeing a difference.

What was the outcome?

So far so good (knock on wood). We are seeing strong demand, even during the winter.

Lessons learned? Challenges?

Anything is possible with the right mindset and planning. We did not know where all of our equity was going to come from. There was a chance we would have had to back out and loose a significant amount of working capital. Getting all the pieces to line up was difficult.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Merchants Capital, Indiana Cushman and Wakefield,