The Capital Stack
Officially Closed!
Cambridge Apartments
We are excited to official close on our 14-unit mixed use property in downtown Ferndale. A few weeks back, while under contract, we introduced the property in our newsletter. You can catch up here https://sheffercapital.com/blog/cambridge-apartments/.
We officially closed on the property on April 28th. Prior to closing the seller informed the current tenants that we were planning a large renovation and they would need to vacate the buildings at the end of April. We were pleasantly surprised with the timely matter in which the current tenants vacated the buildings. Even though we follow protocol determined by the state it can often take months and numerous court dates before a building becomes vacant.
The only noteworthy surprise we encountered post-closing is the $15,000 of trash and junk left behind by the tenants. We try to plan for the unexpected and have a large amount of flexibility in our $600k renovation budget so this problem is easily overcome and has already been completed.
How it’s Going Today
Shortly after closing, we meet our architect on site. He is preparing the “as built” blueprints. We will then submit these blueprints to the city as part of our application for building permits. We are in the process of finalizing our design plan. Much of the design plan cannot be finalized until we determine which walls are considered structural and which are nonstructural. We are hoping the wall located between the kitchen and living room is non structural so that we can remove it and reconfigure a larger kitchen and open concept living room. Our design plan includes styles and finishes similar to what you would see in a New York, urban style apartment. The demo will begin soon. We are projecting our renovated units will achieve on the high end up to $2,000 in monthly income per unit.
The Capital Stack
The purchase price we paid for all 14 units (12 residential, 2 commercial) is $1,500,000. Our renovation budget is $570k. This makes our loan amount $1,650,000. The sum of $1,200,000 is allocated towards the purchase of the property and $450,000 for our renovations. We raised $600,000 of investor capital to complete the equity portion of our capital stack.
Major Market News
| Midwood Investments purchases for $102 Million. According to an article by The Real Deal, Midwood investments and development recently purchased a 158-unit mixed use apartment building in New York for a purchase price of $102 million. The building called Candella Tower was constructed in 1931 and according to the article is “one of New York city’s crown jewels”. The article states that Midwood plans to renovate the residential units and common areas. Purchasing older, value add properties in the best locations is a trending strategy. You can read the full article here:https://therealdeal.com/2022/05/11/midwood-closes-on-102m-west-village-property-plans-renovations/. |
| Tips and Tricks |
| Check out some popular real estate terms: Value Add: This is one of the most overused terms in our industry. A broker selling a property will try say an electronic lock on the door is a value add that’ll achieve $15/month more in rent based off comps. We target “true value add” opportunities through physical and operational efficiency. For example: Physical Value Add: We will spend $570,000 on renovations to make Cambridge a beautiful apartment building inside. There is no discrepancy that the end product will be better than the beginning. For example: Operational Value Add: We purchased 16 unit Hollyvillage in November of 21. We have had 3 units turnover to new tenants where we achieved ~$300 rent increases without spending any money renovating the units. The prior owner had just been drastically mispricing the units when he put them up for lease. We bought this property for ~80% of market value even taking into account the current lease values. Had the seller been more in tune with the market on the leasing, the building would have been worth ~$1.6M, had he been more in tune with the market on the sales, he would have sold for over $1.2M. We paid $975,000. |
