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San Antonio
"A 560-unit value-add multifamily opportunity in the strong and stable market of San Antonio, TX, priced at an attractive post-COVID discount."
-Keith Page, Pearlmark
Address | 11845 West Ave. & 11838 Parliament St. |
Square Footage | 347,424 |
# of Units | 560 |
Year Built | 1979 & 1982 |
Current Occupancy | 85% |
Market Occupancy | 94% |
Current Average Rent | $735/unit |
Average Market Rent | $851/unit |
Purchase Price | $36,500,000 |
Price per Sq. Ft. | $105 |
Stabilized Loan to Value | 39% |
All answers are provided by the sponsors, Pearlmark & OTH Capital, or their representatives.
Why are you buying the property?
Keith Page, Pearlmark: "Pearlmark has been targeting the San Antonio market for some time given its attractive multifamily fundamentals and history as a stable employment market given its exposure to the healthcare, education, and defense sectors. San Antonio is the 7th largest city in the U.S. and has proven to be resilient through downturns (e.g. during the 2008-2009 Great Recession, San Antonio lost only 0.6% of jobs vs 1.1% for Texas and 5.1% for the US). The Airport Area submarket is particularly attractive with no new multifamily supply expected to deliver over the next five years."
"Pearlmark's co-GP partner OTH Capital, a value-add multifamily investor based in Austin, TX, focuses solely on the San Antonio and Austin markets. The seller originally wanted mid-$80,000's per unit pricing, but was willing to accept a low-mid $70,000's per unit price on an assumption basis. OTH was able to negotiate an off-market acquisition at $65,179/unit ($36,500,000) during the depths of COVID, which represents a substantial discount to the market for 1980's vintage product."
"The two properties are cross collateralized by a CMBS loan with a current balance of $21.9mm and a 4.52% fixed rate, with approximately 42 months of term remaining. The senior LTV is 59.9% at closing and Sponsor plans to assume the CMBS loan and originate $11.5mm of preferred equity to sit behind the CMBS loan, for a total loan-to-cost of 75.0% at closing."
"The Property will benefit from an exterior face-lift, interior value-add program, and remediation of deferred maintenance, for which Sponsor has budgeted $6.0mm ($10.8k/unit) in capital improvements. The exterior improvements will consist of replacing all of the siding at Parliament Bend and approximately one-third of the siding at Park West. In addition, the budget calls for repainting balconies, repaving a portion of the parking lots, installing covered carports, replacing exterior lighting, installing new signage, and addressing other deferred maintenance. The interior value-add program consists of $1.8mm ($4.7k/unit) to partially renovate 375 units (67% of total) to a mid-tier renovation level, and the underwriting assumes a rent premium of $90/unit per month (22.8% ROI). OTH will utilize its in-house verticals, which include construction management and maintenance teams, to effectively execute the value-add business plan while enhancing property operations with their in-house property management company."
What are the most important aspects of this investment opportunity for the investors?
Keith Page, Pearlmark:
What is your investment strategy/business plan?
Keith Page, Pearlmark:
"The business plan calls for a total capital investment of $6.0 million ($10,790/unit) to fund light interior renovations, improve exterior/common areas, address certain deferred maintenance items, implement operational efficiencies, and monetize additional tenant amenities. Sponsorship plans to renovate 67% of the unit interiors across the Project at an average cost of $4,739 per unit to bring them up to market standard for renovated or newer vintage product. Amenity enhancements will include pool, common area, club house, and fitness center upgrades. Sponsor plans to drive ancillary income through the addition of paid covered parking and higher collection rates on the utility reimbursement program. Sponsorship believes that light value-add initiatives to the unit interiors and amenity/exterior improvements, including new siding/paint, should position the Property well within its competitive set."
"Pearlmark has underwritten a 27-month implementation plan and expects to achieve a $90 per month rent premium on average, which generates a projected 22.8% return on investment based on the $4,739 per unit interior spend. Interior unit upgrades are assumed to commence four months after closing (June 2021). There is no underwritten rent premium specifically associated with the $4.3 million of exterior and amenity upgrades, which Sponsor believes represents potential upside above the currently underwritten returns. OTH has carried out similar value-add programs at their other assets in San Antonio and Austin that have averaged nearly $100 per month on rent premiums."
"Sponsor anticipates selling the Project in three-and-a-half (3.5) years (August 2024) for $54.1 million (represents $96,655 per unit and an implied 5.50% cap rate on the forward 12-month NOI). The 5.5% exit cap rate is 20 basis points higher than where competitive properties have traded in recent years, when interest rates were much higher than they are today."
How has COVID-19 impacted your business plan?
Keith Page, Pearlmark: "Despite COVID-19, the Property has performed well with collections at 95%+, above US averages for workforce multifamily housing. Occupancy is currently 85%, which reflects 32 down units due to two recent fires at the Property - occupancy is 90.2% excluding the down units vs market occupancy of 94.1%."
"Pearlmark has underwritten an average 12% vacancy + 5% collections loss for the entire first year (through Feb-22) to account for the down units and potential collection loss issues due to COVID-19. Sponsorship plans to monitor collections diligently and perform credit checks on new tenants to ensure they have the ability to pay rent in full and on time. Sponsorship also plans to keep track of new legislation regarding additional stimulus checks and changing evictions laws in order to effectively manage the Property."
What are the risks and how are you mitigating those risks?
Keith Page, Pearlmark:
NOTE: All answers provided by the sponsors, Pearlmark & OTH Capital, or their representatives.
The above demographic and economic data is sourced from CoStar market and submarket reports, Axiometrics, Worth & Associates, Walker & Dunlop, and CBRE.
All information presented is subject to the PPM in the Documents section.
"A 560-unit value-add multifamily opportunity in the strong and stable market of San Antonio, TX, priced at an attractive post-COVID discount."
-Keith Page, Pearlmark
Address | 11845 West Ave. & 11838 Parliament St. |
Square Footage | 347,424 |
# of Units | 560 |
Year Built | 1979 & 1982 |
Current Occupancy | 85% |
Market Occupancy | 94% |
Current Average Rent | $735/unit |
Average Market Rent | $851/unit |
Purchase Price | $36,500,000 |
Price per Sq. Ft. | $105 |
Stabilized Loan to Value | 39% |
All answers are provided by the sponsors, Pearlmark & OTH Capital, or their representatives.
Why are you buying the property?
Keith Page, Pearlmark: "Pearlmark has been targeting the San Antonio market for some time given its attractive multifamily fundamentals and history as a stable employment market given its exposure to the healthcare, education, and defense sectors. San Antonio is the 7th largest city in the U.S. and has proven to be resilient through downturns (e.g. during the 2008-2009 Great Recession, San Antonio lost only 0.6% of jobs vs 1.1% for Texas and 5.1% for the US). The Airport Area submarket is particularly attractive with no new multifamily supply expected to deliver over the next five years."
"Pearlmark's co-GP partner OTH Capital, a value-add multifamily investor based in Austin, TX, focuses solely on the San Antonio and Austin markets. The seller originally wanted mid-$80,000's per unit pricing, but was willing to accept a low-mid $70,000's per unit price on an assumption basis. OTH was able to negotiate an off-market acquisition at $65,179/unit ($36,500,000) during the depths of COVID, which represents a substantial discount to the market for 1980's vintage product."
"The two properties are cross collateralized by a CMBS loan with a current balance of $21.9mm and a 4.52% fixed rate, with approximately 42 months of term remaining. The senior LTV is 59.9% at closing and Sponsor plans to assume the CMBS loan and originate $11.5mm of preferred equity to sit behind the CMBS loan, for a total loan-to-cost of 75.0% at closing."
"The Property will benefit from an exterior face-lift, interior value-add program, and remediation of deferred maintenance, for which Sponsor has budgeted $6.0mm ($10.8k/unit) in capital improvements. The exterior improvements will consist of replacing all of the siding at Parliament Bend and approximately one-third of the siding at Park West. In addition, the budget calls for repainting balconies, repaving a portion of the parking lots, installing covered carports, replacing exterior lighting, installing new signage, and addressing other deferred maintenance. The interior value-add program consists of $1.8mm ($4.7k/unit) to partially renovate 375 units (67% of total) to a mid-tier renovation level, and the underwriting assumes a rent premium of $90/unit per month (22.8% ROI). OTH will utilize its in-house verticals, which include construction management and maintenance teams, to effectively execute the value-add business plan while enhancing property operations with their in-house property management company."
What are the most important aspects of this investment opportunity for the investors?
Keith Page, Pearlmark:
What is your investment strategy/business plan?
Keith Page, Pearlmark:
"The business plan calls for a total capital investment of $6.0 million ($10,790/unit) to fund light interior renovations, improve exterior/common areas, address certain deferred maintenance items, implement operational efficiencies, and monetize additional tenant amenities. Sponsorship plans to renovate 67% of the unit interiors across the Project at an average cost of $4,739 per unit to bring them up to market standard for renovated or newer vintage product. Amenity enhancements will include pool, common area, club house, and fitness center upgrades. Sponsor plans to drive ancillary income through the addition of paid covered parking and higher collection rates on the utility reimbursement program. Sponsorship believes that light value-add initiatives to the unit interiors and amenity/exterior improvements, including new siding/paint, should position the Property well within its competitive set."
"Pearlmark has underwritten a 27-month implementation plan and expects to achieve a $90 per month rent premium on average, which generates a projected 22.8% return on investment based on the $4,739 per unit interior spend. Interior unit upgrades are assumed to commence four months after closing (June 2021). There is no underwritten rent premium specifically associated with the $4.3 million of exterior and amenity upgrades, which Sponsor believes represents potential upside above the currently underwritten returns. OTH has carried out similar value-add programs at their other assets in San Antonio and Austin that have averaged nearly $100 per month on rent premiums."
"Sponsor anticipates selling the Project in three-and-a-half (3.5) years (August 2024) for $54.1 million (represents $96,655 per unit and an implied 5.50% cap rate on the forward 12-month NOI). The 5.5% exit cap rate is 20 basis points higher than where competitive properties have traded in recent years, when interest rates were much higher than they are today."
How has COVID-19 impacted your business plan?
Keith Page, Pearlmark: "Despite COVID-19, the Property has performed well with collections at 95%+, above US averages for workforce multifamily housing. Occupancy is currently 85%, which reflects 32 down units due to two recent fires at the Property - occupancy is 90.2% excluding the down units vs market occupancy of 94.1%."
"Pearlmark has underwritten an average 12% vacancy + 5% collections loss for the entire first year (through Feb-22) to account for the down units and potential collection loss issues due to COVID-19. Sponsorship plans to monitor collections diligently and perform credit checks on new tenants to ensure they have the ability to pay rent in full and on time. Sponsorship also plans to keep track of new legislation regarding additional stimulus checks and changing evictions laws in order to effectively manage the Property."
What are the risks and how are you mitigating those risks?
Keith Page, Pearlmark:
NOTE: All answers provided by the sponsors, Pearlmark & OTH Capital, or their representatives.
The above demographic and economic data is sourced from CoStar market and submarket reports, Axiometrics, Worth & Associates, Walker & Dunlop, and CBRE.
All information presented is subject to the PPM in the Documents section.
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Keith Page, Pearlmark: "The Property is located in North Central San Antonio, TX, just a few miles west of the San Antonio International airport. The Airport Area submarket is home to a significant portion of the city’s suburban office jobs along I-410, Wurzbach Parkway, and Loop 1604. The submarket also has a number of retail centers and is proximate to the Park North Mall. The submarket is fairly dense, which has resulted in limited historical and projected multifamily supply growth. The submarket benefits from its close proximity to some of San Antonio’s largest employers including USAA, Valero, and the San Antonio International Airport. These provide a stable base of demand for apartments, along with some of the better school districts in the broader San Antonio metro."
"The Airport Area submarket has not seen any new supply over the previous five years and is projected to not have any new deliveries over the next five years. In addition, the submarket has seen annual effective rent growth average 2.5% over the last five years and is expected to average 2.0% over the next five years, which includes the projected impact of the COVID-19 pandemic."
The area surrounding the Property has seen significant household and population growth in recent years. In-place rents at the Property are $735/month, which are some of the cheapest in the submarket and represent only 15-20% of the median household income in the immediate area, so Sponsorship believes there is sufficient room to increase rents while still remaining affordable."
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