Property Details
Asset Profile
Value Add

Marchwood Apartments

Philadelphia, PA

Multi-Family Property
Strategic Realty Holdings Calabasas, CA
Strategic Realty Holdings
  • IRR 17%
  • Equity Multiple 1.9x
  • Hold Period 5Y
  • Minimum Investment $25K
  • Year 1 Cash on Cash 4%
  • Stabilized Cash on Cash 8% Y3
  • First Distribution Sep 2022
  • Distribution Frequency Quarterly
  • Co-Investment 10% ($807K)
  • Preferred Return 7-8%
  • Investor Profit Share See Financials
  • Asset Profile Value Add
  • Loan-to-Value 60%
  • Current Occupancy 60%

About this Property

"Marchwood Apartments presents a rare opportunity to acquire, at a significant discount, a prime value-add asset candidate in historical Germantown, Philadelphia."

- Edward Lorin, Strategic Realty Holdings

Property Address 5155 Wissahickon Avenue
# of Units 81
Square Footage 93,400 sq. ft.
Year Built 1929
Year Renovated N/A
Current Occupancy 60%
Market Occupancy 95%
Current Average Rent $1,116
Average Market Rent $1,750
Acquisition Price $14MM
Price/SF $149.89
Stabilized Loan to Value 50%

Top Questions

All answers are provided by the sponsor, Strategic Realty Holdings, or its representatives.

 

Why are you buying this property?

Edward Lorin, Strategic Realty Holdings: "The overall vision is to take this asset and provide an impactful and lasting uplift of physical specs on the exterior and interior aspects that will carry into the next generation of the real estate cycle and appeal to current, modern standards. Retrofit the current basement to bring in modern amenity offerings such as the new Leasing Office, new state-of-the-art fitness center, and clubhouse."

 

What are the most important aspects of this investment opportunity for the investors?

Edward Lorin, Strategic Realty Holdings: "Marchwood operates current rents at $1.13/sf with over 40% vacancy with units in various forms of partial renovation or basic unit turns. Its top-tier rent comparable named Alden Park sits across the street and leads the submarket achieving over $1.65/sf (submarket average $1.51/sf). Alden Park received over $60M of capital improvements in 2016 and was named one of the best apartments in America upon completion in 2018. With our track record and specialty, implementing unit upgrades and bringing modern offerings would bring Marchwood as a top competitor as a significant rental value alternative from Alden Park."

 

What is your investment strategy/business plan?

Edward Lorin, Strategic Realty Holdings: "The total acquisition cost is projected to be $19,969,081, or $246,532/unit with a purchase price of $14,000,000, or $172,840/unit. The capital improvement budget for the property is approximately $4,111,581 or $50,760/unit for exterior, common area, core systems, and interior renovations. The overall vision for capital improvements is to take this asset and provide an impactful and lasting uplift of physical specs on the exterior and interior aspects that will carry into the next generation of the real estate cycle and appeal to current, modern standards."

"Planned exterior and common area upgrades include remediation of the 30 distressed units, garage structure updates, balcony & patio reinforcement, siding & roof repairs as needed, new amenity additions of a dog park, social picnic/lounge area, landscaping upgrades, security system upgrades, upgraded common area lighting. A $500K basement retrofit is planned at Marchwood to bring modern amenity offerings. This new space will house the new Leasing Office, state-of-the-art fitness center, and clubhouse. Interior renovations are planned with a budget of $10,000/unit on the currently occupied 50 units, including upgraded smart appliance packages, smart & energy-efficient thermostats, gooseneck faucets, faux wood vinyl plank or new carpet, upgraded hardware fixtures, and upgraded cabinetry & countertops. The same scope is planned for the 30 distressed units, with additional costs allocated for core systems in plumbing, electrical (wiring & panels), and framing."

"The capital stack for the deal is to be funded with approx. $12M in senior debt and approx. $8M in common equity. Proforma was underwritten based on direct experience and input from AOIN Management and SRH's historical knowledge and research. Due to the nature of current ownership, historical financials referenced in the proforma provide less influence than typical due to the mom & pop, handwritten and cash -basis nature of the seller's financials. Assumptions such as utilities were taken from historical trailing, with most other expense aspects being normalized based upon institutional oversight and management from AOIN. President & founder of AOIN was previously the regional director of the management company that directly oversaw the $60M renovation across the street at Alden Park and is intimately familiar with the submarket and our asset. The property has received the first round of a historical tax credit application approval. If fully approved, the property may receive a tax credit of as much as $600k back."

Year 1: The pro forma assumes that Year 1 will focus on addressing remediation of distressed units, stabilizing/increasing rents to Market Rate, and navigating residual pandemic recovery as evictions courts move towards normal operations."

"Collections & Rent will focus on bringing Market Rents in line with growth trajectories seen in the Philadelphia metro over the last 18-24 months, specifically within Germantown. These new rent levels translate to $1.30/sf while the immediate submarket currently achieves $1.85/sf. Ancillary income will be implemented with reserved parking for $50/mo. and RUBS."

"Loss to Lease & Concessions were historically high due to the artificial vacancy of 40% of the current units being distressed. An emphasis will be on raising new rents to Market by 5%+ for new leases and renewals while implementing premiums on completion of distressed units to renovated units. This is anticipated to simultaneously effectuate an accelerated rent roll turnover from increased rents and standard turnover typically seen upon takeover."

"Vacancy & Bad Debt across the property are anticipated to impact economic losses to overall income in Year 1. New Rents and renewals will be aggressively but tactfully implemented to generate an industry-standard vacancy rate of approx. 5% to allow for inventory to implement unit upgrades. As Market Rents are raised through the first few years, an average of 2% bad debt is assumed while stabilization occurs with anticipated higher than average turnovers."

"Non-Revenue Units & CapEx construction on the new basement leasing office and clubhouse will begin to allow for an additional unit to be brought back online and rentable. The 30 distressed unit remediation is anticipated to take the better part of Year 1 due to permitting process."

"Expenses have no normal deviation from industry and submarket standards. Real Estate taxes are anticipated to increase in line with reassessment upon sale."

"Year 2: Months 12-24 are anticipated to fall in line closer to stabilized performance whilst implementing unit upgrades upon turnover and further optimizing revenue streams. Given how artificially deflated Year 1 rents started, the tactfully aggressive rental increase will continue at approx. 5%. Marchwood has a targeted per/sf rent of $1.45/sf by Year 2 vs. an anticipated $1.90/sf in the Germantown submarket. Concessions, Bad Debt, and Vacancy are anticipated to have normalized by year-end Yr 1, with Yr 2 reaping the benefits of a fully operational rent roll. This translates to a more industry-standard economic loss of approx. 12% in Yr2 vs. 25+% in Yr 1. Expenses are projected to increase by a standard 3%. New amenity offerings are anticipated to come online after a full year of permitting and construction is completed. This should allow for higher rental growth rates due to the unique community offerings over the rest of the submarket."

"Year 3: With a full year of normalized operations, exploration of refinancing will commence with projected new loan proceeds of $15-$16M, allowing for the anticipated payback of a significant amount of the original equity."

 

How has COVID-19 impacted your business plan?

Edward Lorin, Strategic Realty Holdings: "Minimal impacts from COVID-19 are anticipated in the execution of the business plan for Marchwood at this juncture. While there may be legacy eviction cases under moratorium protections, by and large, the demographic has taken paths to navigate the post-COVID economy and recovery."

 

What are the risks and how are you mitigating those risks?

Edward Lorin, Strategic Realty Holdings: "Legacy evictions from COVID moratoriums are anticipated to be inherited from Seller. While this may have an initial impact on Year 1 operations, total overall cases numbers are anticipated to be less than 10% of the unit count based upon current due diligence files provided by Seller."

 

NOTE: All answers provided by the sponsor, Strategic Realty Holdings, or its representatives.

About this Property

"Marchwood Apartments presents a rare opportunity to acquire, at a significant discount, a prime value-add asset candidate in historical Germantown, Philadelphia."

- Edward Lorin, Strategic Realty Holdings

Property Address 5155 Wissahickon Avenue
# of Units 81
Square Footage 93,400 sq. ft.
Year Built 1929
Year Renovated N/A
Current Occupancy 60%
Market Occupancy 95%
Current Average Rent $1,116
Average Market Rent $1,750
Acquisition Price $14MM
Price/SF $149.89
Stabilized Loan to Value 50%

Top Questions

All answers are provided by the sponsor, Strategic Realty Holdings, or its representatives.

 

Why are you buying this property?

Edward Lorin, Strategic Realty Holdings: "The overall vision is to take this asset and provide an impactful and lasting uplift of physical specs on the exterior and interior aspects that will carry into the next generation of the real estate cycle and appeal to current, modern standards. Retrofit the current basement to bring in modern amenity offerings such as the new Leasing Office, new state-of-the-art fitness center, and clubhouse."

 

What are the most important aspects of this investment opportunity for the investors?

Edward Lorin, Strategic Realty Holdings: "Marchwood operates current rents at $1.13/sf with over 40% vacancy with units in various forms of partial renovation or basic unit turns. Its top-tier rent comparable named Alden Park sits across the street and leads the submarket achieving over $1.65/sf (submarket average $1.51/sf). Alden Park received over $60M of capital improvements in 2016 and was named one of the best apartments in America upon completion in 2018. With our track record and specialty, implementing unit upgrades and bringing modern offerings would bring Marchwood as a top competitor as a significant rental value alternative from Alden Park."

 

What is your investment strategy/business plan?

Edward Lorin, Strategic Realty Holdings: "The total acquisition cost is projected to be $19,969,081, or $246,532/unit with a purchase price of $14,000,000, or $172,840/unit. The capital improvement budget for the property is approximately $4,111,581 or $50,760/unit for exterior, common area, core systems, and interior renovations. The overall vision for capital improvements is to take this asset and provide an impactful and lasting uplift of physical specs on the exterior and interior aspects that will carry into the next generation of the real estate cycle and appeal to current, modern standards."

"Planned exterior and common area upgrades include remediation of the 30 distressed units, garage structure updates, balcony & patio reinforcement, siding & roof repairs as needed, new amenity additions of a dog park, social picnic/lounge area, landscaping upgrades, security system upgrades, upgraded common area lighting. A $500K basement retrofit is planned at Marchwood to bring modern amenity offerings. This new space will house the new Leasing Office, state-of-the-art fitness center, and clubhouse. Interior renovations are planned with a budget of $10,000/unit on the currently occupied 50 units, including upgraded smart appliance packages, smart & energy-efficient thermostats, gooseneck faucets, faux wood vinyl plank or new carpet, upgraded hardware fixtures, and upgraded cabinetry & countertops. The same scope is planned for the 30 distressed units, with additional costs allocated for core systems in plumbing, electrical (wiring & panels), and framing."

"The capital stack for the deal is to be funded with approx. $12M in senior debt and approx. $8M in common equity. Proforma was underwritten based on direct experience and input from AOIN Management and SRH's historical knowledge and research. Due to the nature of current ownership, historical financials referenced in the proforma provide less influence than typical due to the mom & pop, handwritten and cash -basis nature of the seller's financials. Assumptions such as utilities were taken from historical trailing, with most other expense aspects being normalized based upon institutional oversight and management from AOIN. President & founder of AOIN was previously the regional director of the management company that directly oversaw the $60M renovation across the street at Alden Park and is intimately familiar with the submarket and our asset. The property has received the first round of a historical tax credit application approval. If fully approved, the property may receive a tax credit of as much as $600k back."

Year 1: The pro forma assumes that Year 1 will focus on addressing remediation of distressed units, stabilizing/increasing rents to Market Rate, and navigating residual pandemic recovery as evictions courts move towards normal operations."

"Collections & Rent will focus on bringing Market Rents in line with growth trajectories seen in the Philadelphia metro over the last 18-24 months, specifically within Germantown. These new rent levels translate to $1.30/sf while the immediate submarket currently achieves $1.85/sf. Ancillary income will be implemented with reserved parking for $50/mo. and RUBS."

"Loss to Lease & Concessions were historically high due to the artificial vacancy of 40% of the current units being distressed. An emphasis will be on raising new rents to Market by 5%+ for new leases and renewals while implementing premiums on completion of distressed units to renovated units. This is anticipated to simultaneously effectuate an accelerated rent roll turnover from increased rents and standard turnover typically seen upon takeover."

"Vacancy & Bad Debt across the property are anticipated to impact economic losses to overall income in Year 1. New Rents and renewals will be aggressively but tactfully implemented to generate an industry-standard vacancy rate of approx. 5% to allow for inventory to implement unit upgrades. As Market Rents are raised through the first few years, an average of 2% bad debt is assumed while stabilization occurs with anticipated higher than average turnovers."

"Non-Revenue Units & CapEx construction on the new basement leasing office and clubhouse will begin to allow for an additional unit to be brought back online and rentable. The 30 distressed unit remediation is anticipated to take the better part of Year 1 due to permitting process."

"Expenses have no normal deviation from industry and submarket standards. Real Estate taxes are anticipated to increase in line with reassessment upon sale."

"Year 2: Months 12-24 are anticipated to fall in line closer to stabilized performance whilst implementing unit upgrades upon turnover and further optimizing revenue streams. Given how artificially deflated Year 1 rents started, the tactfully aggressive rental increase will continue at approx. 5%. Marchwood has a targeted per/sf rent of $1.45/sf by Year 2 vs. an anticipated $1.90/sf in the Germantown submarket. Concessions, Bad Debt, and Vacancy are anticipated to have normalized by year-end Yr 1, with Yr 2 reaping the benefits of a fully operational rent roll. This translates to a more industry-standard economic loss of approx. 12% in Yr2 vs. 25+% in Yr 1. Expenses are projected to increase by a standard 3%. New amenity offerings are anticipated to come online after a full year of permitting and construction is completed. This should allow for higher rental growth rates due to the unique community offerings over the rest of the submarket."

"Year 3: With a full year of normalized operations, exploration of refinancing will commence with projected new loan proceeds of $15-$16M, allowing for the anticipated payback of a significant amount of the original equity."

 

How has COVID-19 impacted your business plan?

Edward Lorin, Strategic Realty Holdings: "Minimal impacts from COVID-19 are anticipated in the execution of the business plan for Marchwood at this juncture. While there may be legacy eviction cases under moratorium protections, by and large, the demographic has taken paths to navigate the post-COVID economy and recovery."

 

What are the risks and how are you mitigating those risks?

Edward Lorin, Strategic Realty Holdings: "Legacy evictions from COVID moratoriums are anticipated to be inherited from Seller. While this may have an initial impact on Year 1 operations, total overall cases numbers are anticipated to be less than 10% of the unit count based upon current due diligence files provided by Seller."

 

NOTE: All answers provided by the sponsor, Strategic Realty Holdings, or its representatives.

Offered By

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Assets Under
Management

Currently
$145MM less than 10 assets
Exited
$742.76MM 40+ assets
Portfolio LTV
70%  
Historical
Realized Returns

Total IRR
29.4%  
Equity Multiple
1.76x  
Annual Cash
7%  
Years Of
Experience

As Principals
20+ years  
In Business
14 years  
Size
10 Staff  
* All information is reported by Strategic Realty Holdings as of 2/9/2022.
Assets Under
Management

Currently
$145MM less than 10 assets
Exited
$742.76MM 40+ assets
Portfolio LTV
70%  
Historical
Returns

Total IRR
29.4%  
Equity Multiple
1.76x  
Annual Cash
7%  
Years Of
Experience

As Principals
20+ years  
In Business
14 years  
Size
10 Staff  
* All information is reported by Strategic Realty Holdings as of 2/9/2022.

Financials

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Location Details

Philadelphia, PA

Edward Lorin, Strategic Realty Holdings: "Marchwood is located in Philadelphia, Pennsylvania, the urban core of the Philadelphia Metropolitan Area in a submarket known as Germantown. The region encompasses over 3,500 square miles that immediately surround Pennsylvania and New Jersey. It is recognized as one of America’s most historic neighborhoods, dating back to 1683. Locals look forward to easy commutes to work using two SEPTA rail lines."

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Offering Agreement Documents

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