Overall Strategy
We invest in well located B- properties or C+ properties in areas with strong rental demand and properties that will benefit from a value-add business plan. We will not invest in properties in heavily crime-ridden neighborhoods and also do not seek to purchase class A properties. Our goal is to improve NOI over the first 2 years, by working hard on all fronts to improve customer service to existing tenants, improve our leasing standards overall, enhance security, improving marketing (especially online marketing), unit interior upgrades and addressing all exterior deferred maintenance. We have a 3-5 year targeted holding period; and will upgrade unit interiors as move-outs occur.
Preferred Areas
Any urban infill or suburban location in the greater DFW area with positive demographic factors and gentrification going on that supports a value-add deal. We also invest in secondary markets in Texas that have a diverse economic base and demonstrated rental rate growth for well-run apartment communities.
Number Of Units
Minimum of at least 100 units in order to spread the property’s fixed costs over a large enough unit base. Prefer larger deals (150+ units). Open to portfolio acquisitions as well.
Minimum Cap Rate and Value Creation
Minimum 5.75% going-in cap rate on trailing 3 month revenue and trailing 12 month expenses (tax adjusted). Apart from the minimum 5.75% figure, the potential long term cap rate or yield to cost is more significant for us than the going in cap rate. Looking to build up to a minimum 8.00% yield to cost once the value-added renovation is complete, the resident experience has improved, and property is fully stabilized.
Capex
Typically no more than $10k/unit in total new capex required (interior and exterior combined) to accomplish business plan.
Average Unit Size
At least 600 SF. Not likely to pursue properties with average unit size over 1,000 SF as these typically command lower rent psf.
Year Built and Product Preferences
Prefer 1970s and 1980s vintage apartments. Will consider 1990s vintage apartments if priced right. We avoid projects with significant structural issues like foundation repairs that affect more than one or 2 buildings on site. Also avoid projects that have been substantially renovated already.
Average Rental Rate
Through focus, a strong team, and our value-add plan, we are looking to increase the blended effective rent across all units by at least 15% over the first 2 years (irrespective of what happens to market rent growth).
Existing Debt
Prefer deals that are freely pre-payable. Will consider deals with Agency debt in place to the extent that Agency debt matures during our holding period and a refinance to our preferred leverage level is attainable given our cash flow projections.
Occupancy Rate
At least 60% economic occupancy going in with no maximum occupancy
Property types
We do not currently invest in senior living or student housing projects
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