Jamestown Apartments - Value Add Multifamily Deal

1534 James Patrick Lane  St Louis, MO 63138

Min. Invest $40,000
Target Hold 72 mo
Annualized Returns 8%
Progress - 0% Pledged
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Deal Background & Investor Return Metrics

Deal Background:  We are acquiring a 1980s-built multifamily property with workforce clientele in a stable neighborhood of St Louis County at a very attractive price. This is a $1,000,000 total Equity deal, funded 10% by project sponsors and 90% by investors, and with a $2,237,500 Total Project Capitalization. The Seller of this property is an elderly gentlemen that has mis-managed the property over the past several years by having no full time staff on site, a limited marketing plan, and a revolving door of third party management solutions in place. We are acquiring this property off-market (without any broad marketing process), and for a very attractive price per door of $22,000 versus recent comparable property sales that are more expensive.

 

Investor Structure and Expected Return Details: Equity (including Sponsor equity) will receive an anticipated Preferred Return of 8% per annum and a waterfall structure for upside thereafter. If funds to pay the Preferred Return are not immediately available then the unpaid balance will accrue. The structure of the investment will provide for operating cash flows and cash flows from a capital event in the following priority:

--  0%-8% IRR: 100% to Equity Investors

--  8%-12% IRR: 70% to Equity Investors

--  >12% IRR:   50% to Equity Investors

Sponsors forecast Investor Equity Returns, net of all fees and promotes:

--  3-Year Project Hold: 1.60x Equity Multiplier & 18.3% IRR

--  6-Year Project Hold: 2.00x Equity Multiplier & 14.8% IRR

 

Subscriber Instructions: To subscribe to this deal you must be an Accredited Investor.  If you meet the criteria for an Accredited Investor then you will:

A) Complete the Subscription Agreement, specifically pages 13-17, and return to Sponsor Craig Berger at Craig@ARealtyCap.com, or to the mailing address listed in the Subscription Agreement on Page 1; 

B) Sign and return the last page of the Operating Agreement (page 48); and

C) Wire Subscription Funds to: 

    North County Apartment Holdings LLC

    c/o Simmons Bank, 8151 Clayton Road, St Louis MO 63117

    Account Number: 132635722

    Routing Number: 082900432

Investment Type: Anticipated Term: Raise Amount: Anticipated Investor IRR:
Equity
72 Months $1,000,000 14.4%

Financial Summary

Investor Structure and Expected Return Details: Equity (including Sponsor equity) will receive an anticipated Preferred Return of 8% per annum and a waterfall structure for upside thereafter. If funds to pay the Preferred Return are not immediately available then the unpaid balance will accrue. The structure of the investment will provide for operating cash flows and cash flows from a capital event in the following priority:

--   0%-8% IRR: 100% to Equity Investors

--   8%-12% IRR: 70% to Equity Investors

--   >12% IRR:   50% to Equity Investors

 

We forecast Investor Equity Returns, net of all fees and promotes:

  • 3-Year Project Hold: 1.60x Equity Multiplier & 18.3% IRR
  • 6-Year Project Hold: 2.00x Equity Multiplier & 14.8% IRR

Financial Sources

Investor Equity $1,000,000
First Mortgage $1,237,500

Financial Uses

Purchase price $1,625,000
Closing Costs and Fees $138,093
Property Renovations and Upgrades $166,854
Working Capital and Interest Reserve $307,552

Property Summary


This Value-Add Opportunity has a Heavy Operational Improvement Component: Currently there is no full time property manager on site, which hurts rent collections, apartment showing and lease-up activities, and other aspects of the business. Thus, the acquisition of Jamestown Apartments is an operational improvement and execution play as we work to install a quality property staff, and increase occupancy from about 70% currently to a market rate of 93%. If these things happen, we expect project-level cash-on-cash returns will ramp quickly to 11% annually or better. This is a compelling turnaround opportunity with significant cash-generation potential sourced off-market.

 

Marketing is key to the Turnaround Plan: Current Management has NO full time property manager to show apartments or collect rent, NO marketing plan in place, NO rent specials, NO professional management ensuring these things get done, and allows NO pets at the property. Here is our Turnaround Plan:

  •   Rebrand the Property with a new name; Enhance signage;
  •   Hire a full-time property manager to collect rent, show apartments, and 
  •  Advertise on Apartments.com, Zillow.com, Rent.com, Craigslist.org, and others;
  •   Pay Locator Fees to fill up with clients in early stages;
  •   Market with area employers and offer specials to employees, attracting higher quality clientele;
  •   Host 6-8 on-site Community Events per year: ‘Meet Your Neighbor’, Outdoor BBQ cookouts, a Holiday Party, Pet Parties, and More;
  •   Allow Pets at the Property and charge Pet Rent.

 

Beautifully Renovated Apartment Interiors and Affordable Rent are Attractive to Renters: The Property’s interiors are in excellent condition, and we anticipate only limited Capital Spending on interiors apart from the two or three down units we have contracted for with Sellers. We are pleased with the value proposition these interiors present to us as Buyers and to our Renter Customers. All apartments are 2-bedroom and 1-bathroom units with 780 square feet of living space. At current market rent of roughly $625, and given the current high level of renovations, we think these units apartments present a strong value to current and prospective rental customers.

 

Capital Spending and Improvement Plan is Noticeable, but Not a Heavy Lift. We are budgeting a modest $167,000 in total Capital Improvements at Jamestown Apartments, with some give or take possible. We expect to invest in some Air Conditioning units, a number of which are nearing the end of their useful lives. We will spend on some modest balcony remediation work (only 38 balconies exist and most are in good shape). We plan to invest in low flow toilets and showerheads to drive water/sewer cost savings. We will likely install a Storage Shed so that we can bring one more unit back online, bringing total rentable units up to 75. We expect to add a large property sign out front, and add a grilling station with picnic tables as Resident Amenities.

 

Location is stable and Convenient to Employment: The Spanish Lakes neighborhood has reasonably strong demographic and median income levels. According to City-Data.com, the median household income in this zip code (63138) was $38,604 in 2016.  This area is stable with respect to population levels and offers convenient access to Boeing's Defense & Security unit, Lambert St. Louis Airport, and Emerson Electric, among others. According to Wikipedia, “Public transportation has been beneficial to North County and it was the first area of Metro St. Louis served by the metropolitan rail system MetroLink.”  North County includes the neighborhood of Spanish Lake.  The property is also roughly 200 yards away from Spanish Lake Park, which offers a large lake, playground, picnic areas, nature hikes, and is a substantial amenity, in our view.

Address Property Type Units Buildings Current % Occupied Avg. Unit Size
1534 James Patrick Lane
St Louis, MO 63138
Multi Family 74 6 70.00 780

Market Summary

Location is stable and Convenient to Employment: The Spanish Lakes neighborhood has reasonably strong demographic and median income levels. According to City-Data.com, the median household income in this zip code (63138) was $38,604 in 2016.  This area is stable with respect to population levels and offers convenient access to Boeing's Defense & Security unit, Lambert St. Louis Airport, and Emerson Electric, among others. According to Wikipedia, “Public transportation has been beneficial to North County and it was the first area of Metro St. Louis served by the metropolitan rail system MetroLink.”  North County includes the neighborhood of Spanish Lake.  The property is also roughly 200 yards away from Spanish Lake Park, which offers a large lake, playground, picnic areas, nature hikes, and is a substantial amenity, in our view.

 

Sponsor has Experience in St Louis with this Product Type:  Project Sponsor Craig Berger has experience owning multifamily apartments in the St Louis market. In 2015 he led the purchase of a 95-unit apartment property in a the City of St Louis with a customer base that had a more challenging demographic than what is found at Jamestown Apartments. In that project, Craig and his team grew rents by more than 40% in a span of two years by upgrading the property, increasing tenant underwriting standards, and utilizing enhanced marketing strategies. In early 2018, Craig and his Team successfully refinanced the property, resulting in a more than 2.9x total Equity Multiplier and a 40% IRR in less than three years.  While past performance is not indicative of future successes, this prior experience will prove invaluable in the attempted operational improvement of Jamestown Apartments.