Multifamily Monday: Value-Add Doesn't Mean What It Used To
Value-add used to mean buying a foreclosed property that was 50% occupied. That was so two years ago.
It’s costing more to get into any deals because rental rates and occupancy are higher than they’ve ever been, says MBP Capital principal Ryan Heddleston (left, with his 4-year-old daughter, Emma, and SPI Advisory's Michael Becker, with his 5-year-old daughter, Bree). You can push rents if you do things like replace the flooring and appliances, Ryan says. Rents may go up 20 cents/SF on a property that was getting 70 cents/SF.
Ryan, Michael, and several California investor groups purchased four value-add properties in the last six months. The 120-unit Bay Island in Garland (pictured), on Lake Ray Hubbard, got a mural to help with rebranding. Even though improvements push up rents, he says most residents don’t mind with the spiffed up product. Another way to increase revenue is to pass the costs of sewer, trash, and water expenses back to the renter. With all of these moves combined, you don’t have to buy for pennies on the dollar to see an attractive ROI, he says. No more chasing foreclosures only.
The group also purchased the 160-unit Stonewood (rebranded the Gardens on Walnut) in Garland; the 255-unit Cook’s Creek in Farmers Branch; and the 260-unit Huntington Chase in Irving (rebranded as Tiera del Sol). Michael tells us one of the most attractive aspects of buying these properties is the ability to lock in long-term debt at historically low rates. The Fannie Mae loan allows for re-leveraging the property through a supplemental loan without having to do a refi, he says. Also on the MBP Capital team is prez Mike Phillips and VP Cathy Finn. MBP’s sister company, MBP Texas, will manage all four properties. When Ryan’s not on the job, he likes to play basketball and scuba dive, while Michael loves to travel.