The Capital Stack
| 24 units, private entry apartment homes, value-add project, future development opportunity |
Creekside at Fenton Heights
This week’s letter will highlight our beautiful Creekside property in Fenton MI. This 24-unit property is located just fifteen minutes from my hometown. My familiarity and understanding of the demographic and local income make Creekside at Fenton heights the perfect addition to our portfolio. Creekside at Fenton heights is tucked away on four acres of woods with a swiftly running creek. We immediately saw the 23 acres as the perfect opportunity for a future new development. Creekside at Fenton Heights is located just 1 mile south from growing downtown Fenton. Downtown Fenton is an aspiring area and is quickly expanding and adding more retailers and restaurants.
Process to get under contract
We got in touch with the owner of Creekside at Fenton Heights in the fall of 2019 through a targeted direct mail campaign. The owner was immediately responsive, and the negotiations began. The owner agreed to allow us to walk the property and even tour a couple units with the help of the current property manager. The term property manager in this case is a bit untraditional as the “manager” was also the handy man and offering his services in exchange for a unit for his father to live in. The property manager provided a lot of information both good and bad in regard to the condition of the property as well as the current tenant base. It was clear that the property was entirely miss managed and the property manager was not allocated enough funds to properly maintain the property. The lack of funds lead to an abundance of deferred maintenance and high vacancy at the property. At the time of our initial tour ten of the twenty four units were vacant primarily due to poor management. The lack of management as well as the deferred maintenance would work to our advantage as we could add a significant amount of value simply by implementing professional management and addressing the maintenance problems. On the initial visit we were pleased to learn that nearly all tenants had been living at the property for more than two years and there seemed to be a strong sense of community amounts the current tenant base.
After the initial LOI was submitted in fall of 2019 the seller was unresponsive and unreachable for several months despite our weekly attempts to reach him. It was not until spring of 2020 that we were able to get back in touch with the owner. After two more months of negotiations and attorney communication the property was officially under contract June 30, 2020.
Due Diligence
Once the property was under contract we took full advantage of the due diligence period to learn everything we could about the property. We began with a full analysis and audit of the financial reports and rent roll. We sourced a building inspector who completed a thorough building inspection. We also had environmental reports completed. We began getting quotes from contractors and finalizing our business plan. We planned to renovate the ten vacant units first and continue the renovation on the other fourteen units as their leases expire. We began talking to credit unions and banks to line up financing for the project.
The Capital Stack
We ended up with a loan from a local credit union who gave us $1,850,000 for the property purchase and $325,000 for renovations. The terms were 9 months interest only, 4% rate, fixed for 5 years, floating for an additional 5 years with a balloon payment due in 10 years. We raised $625,000 in total equity from investors for this project.
How its going today
Our business plan is moving along well. All renovations were completed on the 10 vacant units in Q2 of 2021. Lease increases and renovations have been completed on seventeen of the twenty-four units. We are expecting to have all twenty-four units renovated in Q2 of 2022. The rent roll for total monthly income at closing was $10,375 and is now at $25,300.
We have began the process of expanding Creekside at Fenton Heights. We are planning to develop forty-eight more units as well as add a clubhouse, fitness center, and pool for the residents to enjoy. We are currently working on township and state approvals and hope to break ground in late summer or fall of 2022. Pictured below are photos of the projected new development.
Major Market News
Rent Vs Buy?
According to an article by RentCafe there has been a significant rise in the number of qualified individuals that are choosing to rent their homes as opposed to buying them. The article quotes “The number of higher-income Millennials who are renting instead of buying a home is on the rise.” The article attributes this to the highly competitive housing market in 2021. Check out the full article >> https://www.rentcafe.com/blog/rental-market/market-snapshots/millennial-lifestyle-renting/. We plan to capitalize on this growing trend by implementing high end finishes and state of the art amenities when developing the additional forty-eight units at Fenton Heights.
Tips & Tricks
Check out some popular real estate terms:
- Rent Roll- A rent roll is a document outlining the current rents for each unit. The document is essential for successfully analyzing any property.
- Due Diligence- is a set period of time outlined in the LOI. Usually, 30 to 60 days where the buyer has access to the property in order to perform necessary inspections, meet contractors, etc. This also includes title search, surveys, and full financial audits and much more.
- Importance of follow up. In order to get in touch with the seller after he initially expressed interest in selling, I called him every week from November 2019-April 2020. He wasn’t answering or returning calls so I began calling his office and got in touch with his secretary who was able to get him to call me back and after that he was responsive. Had I just kept calling that one number or stopped calling after not getting a response, the deal never would have happened and someone else would likely be in the great position that we are.
Thank you for reading and your interest in Sheffer Capital. We look forward to having you follow along on the journey.
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