Investment Info:
Large multi-family (5+ units) commercial investment investment.
Purchase price: $1,265,000
Physically distressed 20 unit apartment complex with 90% occupancy. Business plan is to vacate all units and perform massive renovations to all buildings(5) and apartments. Roofs, siding, windows, doors, flooring, appliances, paint, railings, patios, lighting, heating elements, water tanks, bathroom fixtures, kitchen cabinets, and counters. Everything from top to bottom minus the existing drywall.
Currently exterior renovations are underway and interior renovations will commence with issuance of building permits.
Total renovations to equal $940,000 with an ARV of $2.621 million. Once renovations are completed and the property is leased out, the plan is to refinance with agency debt and recapture the equity gained by renovating/leasing at market rents. Rents are moving from $750/apartment to $1245/apartment with a projected NOI of $180,000.
The project is being funded with a construction loan from a local credit union and owner investment. Mix of existing photos with renderings of final product.
Update Oct '20: Construction is now complete and 15 of the 20 units have been leased thus far. Lease rates of $1195 - $1345 depending on layout and location. ARV based on realized financials projected to be $3.1 million which is substantially higher than our original proforma projections due to increased revenue and decreased operating expenses. Property will be refinanced with agency debt at 90% occupancy at the end of the year.
How did you find this deal and how did you negotiate it?
Originally contact was from a mailer we sent the owner. Communicated for almost a year before the owner decided to list the property with a broker. Given the long term nature of our relationship with the owner, he was kind enough to allow us to view the listing before it went public and given we had already completed an enormous amount of research into the project we were able to offer full asking price.
How did you finance this deal?
The deal was financed through a local credit union at 80% LTC with our company funding the remaining 20% .
How did you add value to the deal?
Value was added via forced appreciation as we invested 50-55,000 per unit into the property. Almost every portion of the property has not been updated or replaced aside from the framing, foundation, and drywall.
What was the outcome?
ARV value that exceeded our projections and we plan to refinance at year's end with long term agency debt. This refinance will allow our company to receive 50% of our initial equity back as proceeds and subsequently boosting our investment returns. The property will be self managed by our company.
Lessons learned? Challenges?
We had a good amount of delays and disruption to our renovation schedule due to Covid-19 construction restrictions. This pushed our project completion date back about 3 months which ultimately has done the same for our leasing efforts. But we managed through it and completed the project successfully.
We also underestimated the environmental component of the renovations leading us to have to expense testing we had not budgeted for and amend the project's final sow to work around those challenges
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Brian Sheldrick @ Capital Communications FCU - Cap Com is a outstanding lending partner that we have and will continue to work with for all our acquisitions.
