Multifamily Case Study: Operational Value-Add Deal
Elite Apartment Coaching’s Chris Urso walks us through one of his first deals, a 40-unit value-add apartment play in Cincinnati, Ohio.
Many of you know that our first apartment deal was in Cincinnati, and this market will always hold a special place in my heart.
We have worked long and hard to develop relationships in this market. Our first multifamily acquisition in Cincinnati was an off-market 40 unit building for $260,000 in 2009. In 2015, in the same city (but different submarket) we closed on a $12,400,000 apartment community, Pinnacle on Pleasant.
The “story” of Pinnacle
One of our broker contacts in the market brought Creekside Apartments (Pinnacle’s former name) to our attention in the beginning of 2015. This was a deal not getting huge attention as it was listed by a smaller commercial broker. The partners were successful fix and flippers and this was their first apartment building. They bought the property severely distressed and spent a few million dollars curing major issues. While they did a nice job producing beautiful units they ultimately spent their dollars in the wrong places.
Without having real multifamily experience, they were making significant operational mistakes and that was our opportunity. Knowing the inside story of this deal’s history, we knew that the sellers had to get out.
Why we loved this deal
Strong submarket. The location is on a main road in very desirable submarket of Cincinnati, with excellent schools and higher level retail.
Upgrade possibilities. Because the submarket was so strong, we knew that if improved the amenities, we could pair those exterior enhancements with the very nice interiors and command higher rents with an improved tenant base.
Operational Efficiency. We have a relationship with a very sophisticated property management company, and we knew that by putting their systems to work for us, we could maximize the property’s performance – this property now has a steady 95% occupancy.
Why this deal was different
Our bread and butter has been rough value-add deals, where we come in and do some heavy renovations to rebrand and reposition the property. Although this deal had some value creation components to it, the heavy lifting was already done.
This plan for this property was primarily operational. We rebranded to Pinnacle on Pleasant, did some landscape design work, and added amenities (an outdoor kitchen area and a dog run). We knew that these amenities would appeal to our target demographic, elevating the tenant profile.
The outcome for our clients
Almost one year into ownership of the property, we have already made our first distribution ahead of schedule. Our clients who invested in this project will expect to receive ~12% annualized return on their investment over the hold period 5-7 years.
As even “B” markets start to tighten, buying the right deal, for the right price, in the right location has never been more important.