Tertiary Market Investing for a 600%IRR

[Michael Gilman]

This case study illustrates how Cross Mountain Capital ("CMC") achieves exceptional returns in an "under the radar" market. In addition to investing in high growth MSAs, we like sleepier markets like Vermont and New Hampshire. These markets are characterized by historically strong demand fundamentals, limited inventory, and a dearth of existing real estate operators. In addition to acquiring assets at favorable pricing, our success in these markets is due to CMC's self-management of the portfolio through our in-house property management division, MSA Properties, LLC, which allows us to achieve operational efficiencies and cost savings.

This example involves the 20 unit School House Apartments, which belongs to a larger portfolio in the region. The property was purchased in 2015 using creative financing. A bank provided a regular way commercial loan at 75% LTV and an additional 20% of leverage was obtained through an asset backed line of credit. The building was acquired at a 9% cap on "as is" at a rate of 4%, so debt service was a non-issue. During the hold period, renovations were accomplished on a gradual organic basis with a small budget of $1K - $5K per unit for maximum ROI, as leases expired and rents were increased upwards of 20%.

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