Deal Of The Week

160 Units: Deal Of The Week 11-19-2020

Eric Wilson
December 15, 2020

160 Units

Highlights: This project is a 160-unit apartment community located on a 12-acre tropical tract in the Sarasota-Bradenton MSA. The community features an appealing mix of one-, two-, and three-bedroom units averaging 907 square feet. Each unit has washer/dryer connections, large windows, and a private patio or balcony. Additionally, residents benefit in its proximity to Sarasota’s largest employers, highly rated schools, and a variety of preferred retailers. Premium beach access is available within a twenty-five-minute drive. These factors combine to make this area on of the most desirable residential areas in the Gulf Coast region.

The property was built in 1996 and a full renovation was started when the current owner took procession in 2017. Due to the owner experiencing COVID related financial losses unrelated to the project, the renovation stalled in April of 2020 with 25% of the units in need of renovation. As of the underwriting date less than 50% of the improved units have been adjusted to market rent level.

Repositioning:

The project will be acquired for $8,450,000 and an additional $400,000 will be invested into the completion of the renovations. The new market lease rate for the improved units will increase by $132 per unit increasing gross annual income by $158,400 in the first year. The area has high demand level so the units should be immediately absorbed.

A review of the financials show that the property is currently being operated a 54% expense to income ratio. This is due greatly to the failure to complete the renovations in a timely manner which has delayed rent increases. The expedient completion of the remaining renovation combined with the installation of our professional management team will allow us to bring our expense ratio well below 40% within year one dramatically improving NOI enhancing the valuation and improving cashflow.

Targeted Returns

Cash On Cash: Year 1 11.75% to Year 5 17.57%

IRR: 23.08%

Equity Multiple: 2.1x