The Capital Stack
Hidden Cove Apartments
The Hidden Cove Apartments are in growing Norton Shores, Michigan. This property is unique and for us truly is “the one that got away”. The community offers 54 waterfront apartments ideally positions for an extensive value add. Each unit presents a view of beautiful Mona Lake which offers boaters access to lake Michigan. Hidden Cove Apartments are currently owned by the 13th largest apartment owner in the country 70,000+ units. The property offers large 2- and 3-bedroom units. The 2-bedroom units are 1,215 sf and the 3-bedroom units are 1,540 sf.
How “it” Got Away
We have had our eyes on this property since early 2021 when a broker had emailed it to us. At that time the property was listed for what brokers call “market pricing”. We didn’t get very far in the initial process as we were strictly targeting Metro Detroit and this property was on the other side of the State. In the fall of 21 we reached back out to the same broker with interest and they indicated the seller wanted over $7m which we felt was too much for the rental income at the time.
We were pleasantly surprised when it was listed again in May of 2022. This time by a broker whom we are familiar. We let him know immediately that we were very interested and familiar with the property. We saw the current brokers’ LinkedIn post highlighting Hidden Cove as a “coming soon” listing. We immediately reached out to the broker and received the financial information needed to complete our underwriting. The most current financials showed the properties rental income had increased significantly since we underwrote the property in Oct of 2021, the increased rental premiums now justified a price that aligns with what the seller is looking for. We set up a tour and met the broker at the property. The tour went extremely well, we loved the waterfront views from each unit and were impressed with the condition of the property.
We verbally expressed interest at $7M. At that time the broker let us know that there was another group with a very aggressive offer that we would need to compete with. The broker advised us to submit our best and final LOI. We sweetened our original offer and submitted a LOI for $7.7 million with $100k nonrefundable day 1, we included a standard 30-day DD period and 30 days to close. After a buyer interview with the sellers and much deliberation, we didn’t get the deal and the sellers accepted the other offer.
Our Projected Business plans
Had our offer been the one the seller had chosen to accept we had many exciting ideas for the property. We had planned to complete a high-end interior renovation costing ~ $35k per unit. We had plans to update the common areas and expand the properties amenities. We also wanted to add a resident’s marina. The quotes we received showed the property and water depth would allow for 34 boat slips large enough to accommodate boats up to 30 feet long.
If purchased we had planned to structure the Hidden Cove Apartments one of two ways.
- As a traditional value add project. Complete the renovation and expansion and increase rents to market rate, ~$1.3 per sf.
- Transition the property to condos and sell each unit individually. Our analysis showed that a waterfront condo with boat access to Lake Michigan could sell north of $300k.
We had received soft quotes from our lending broker. We had planned to receive funding with a 75% or 80% loan to cost bridge loan. We expected a 6% interest rate. Approximately $2.5m of investor equity would fund the remaining cost.
Major Market News
|Adelaide Pointe Development|
After our tour of Hidden Cove we took a drive to the highly anticipated Adelaide Pointe development site. This site is a ~10 min drive from Hidden Cove Apartments. According to an article by MiBiz this development will be apart of the “$250 million vision to transform 30 acres of Muskegon waterfront property”. The development includes Luxury condos, an event space, marina, and restaurant. You can read more about this massive development here. https://mibiz.com/sections/real-estate-development/developers-unveil-details-for-250m-30-acre-muskegon-lakefront-site
|Tips and Tricks|
Staying Active on Social Media: While I would like to be nearly anonymous in the real world, there is true value is staying connected with brokers, investors, and other multifamily operators on social media. We never know where another deal may come from. As much as it may seem a waste of time, we have met many great people from LinkedIN, Twitter, Facebook, and Instagram so we try to stay relatively active. By posting more, interacting with others in the industry, we are able to stay top of mind whether it be brokers, lenders, or investment partners who may be able to help us grow which is the ultimate goal.