Investment Summary
In 2020 we made only 1 new investment. We paused all new investments in March and watched, waited and analyzed. We analyzed our internal portfolio of over 45 active commercial real estate investments. We analyzed our operating partners portfolios across multiple asset classes, and we analyzed macro level data and trends.
After about 4 months, it became apparent that our asset classes were not facing distress, as most residents continued to stay and pay rent. Occupancy and rents received both remained strong.
Further, we found that resuming renovations was viable, and recently renovated units were in high demand. Rental rate premiums for renovated units were in line with projections at many of our assets. Investor demand was surging, as many would be sellers were sitting on the side lines, resulting in a shortage of supply.
By Q3 2020 we decided to proceed with our first investment into an attractive apartment community in Phoenix Arizona for $40,500,000. The 288 unit community was 98% occupied and our operating partners already had a proven business model and track record renovating and selling 11 apartment communities in Phoenix. The property was conservatively underwritten and the business plan called for renovating all units and selling the property in year 3.
In October 2021, this apartment community was sold (just 1 year later) for $67,400,000, about ~$10m above our year 3 projections. Only about 30% of the units were renovated and another equity group paid a price that was beyond expectations.
Our investors yielded between 92% - 99% average annual ROI and IRR
Although market tailwinds have been strong, this natural appreciation was only 1 piece of the equation to outperform our projections to the magnitude that we did. Ultimately our operating partners executed on the business plan in a very meaningful way, which was indicative in the valuation gain:
- 72 units were renovated, which make up 25% of the property in a 1 year period
- NOI grew 39.7% since acquisition on a trended T-3 basis for sale NOI ($2,028,628 to $2,834,280)
- Weighted average rent premiums for the property on renovated units grew $329 or 33.4% from in-place rents ($985 to $1,314)
