The Capital Stack
This week will feature the first quarterly update of 2024. The portfolio updates we share every quarter highlight each property we own and share a bit of what we work on daily.
Milford Village Flats
We acquired Milford Village Flats in March of this year. Currently, our total rental income stands at $12,235, with just one vacant unit. We’ve already completed the demolition and painting of the vacant unit and are in the process of finalizing our design plans and purchasing the necessary finishes for the renovation.
Additionally, we’ve secured contracts for a new parking lot and are gathering bids for a complete landscaping makeover. While it’s too early for detailed progress updates, we’re looking forward to the journey ahead.
Sugar Pine
In February of this year, we acquired the Sugar Pine apartments with a rent roll of $13,915. Initially, one storage unit was vacant, which we decided to repurpose for storing materials needed for upcoming unit renovations. Shortly after the purchase, we experienced our first vacancy, and renovations on this unit are nearing completion.
Currently, our focus is on several fronts: renovating units, renewing leases, and improving the property overall. We started by selecting a new laundry provider, enabling us to upgrade the existing machines with brand-new ones. Additionally, we’ve already painted the hallways and doors, and plans are in place to replace the hallway flooring soon.
Addressing parking lot issues, we’ve contracted with a local towing company to remove abandoned vehicles, and we’ve signed a contract for extensive parking lot repairs and re-striping once weather conditions permit.
Currently, we’ve successfully renewed leases for several units. One storage unit was renewed at $175 and paid 6 months in advance. Additionally, we’ve secured renewals for four apartments at $800 each, compared to the previous rate of $645. Importantly, these rental increases were achieved without any capital expenditure on our part.
Although we’re only two months into our ownership of this property, we’re pleased with the progress we’ve made in optimizing operations so far.
Suburban 36
In July of 2022, we purchased the Suburban 36 portfolio. The portfolio consists of two properties: Plymouth Gardens and Donovan Townhomes. The portfolio is currently 97% occupied. Our only vacant unit is technically “vacant rented” as it has a signed lease with a resident set to move in this month. This move-in brings our rent roll to $49,346, exceeding our initial projection of $49,200 for fully stabilized market rent. While we initially anticipated reaching full market rent in year 3, we achieved this milestone much earlier than planned, having owned the property for only 21 months.
We purchased these properties for $4.85 million, and with the current market cap rate of 6.5%, our valuation has risen to $5.76 million. This marks a 25% increase over our initial purchase, despite market cap rates rising from below 6% to 6.5% due to increasing interest rates.
Creekside at Fenton Heights
Creekside is currently at 96% occupancy, with one unit undergoing renovations. Operations at this property have been running smoothly without much intervention. We are now considering selling the property because the additional land could accommodate 86 more units. Originally, we had planned to develop this land ourselves but have since changed our minds and decided that development may not be the best use of what we believe is our competitive advantage in the local markets.
Royal Oakland
There haven’t been any significant changes at this property as it operates smoothly on autopilot. Situated in downtown Royal Oak, which is my favorite market in Michigan, we intend to hold onto this property for the long term with our joint venture partner.
Major Market News
Office to Residential Conversions
Our two most recent acquisitions have us knee-deep in renovations and property improvements. However, it seems our workload might not be as intense as the office-to-residential conversions happening in New York. According to TheRealDeal, Tony Park and Elad Dror are converting a neglected office building in Koreatown into a 77-unit apartment complex. The article mentions that such conversions are challenging, with unexpected costs and complications deterring even experienced developers. For more information on the renovation, you can find the full article linked here.
Tips and Tricks
Terms-
Market Capitalization Rate: The market capitalization rate often referred to as the “cap rate,” is a key metric used in real estate investment. It represents the ratio between a property’s net operating income (NOI) and its current market value. Essentially, it indicates the rate of return an investor can expect to receive from a property based on its income generation potential. A lower cap rate typically indicates a higher valuation and lower risk, while a higher cap rate suggests a lower valuation and potentially higher risk. Investors often use cap rates to assess the attractiveness of investment opportunities and compare properties within a market.
