Financing apartment acquisitions, even in a strong market like Colorado Springs, is getting a little trickier as lenders worry and interest rates edge upward. But for the right property, capital is still available, George Smith Partners principal Jonathan Lee told us.
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Recently Lee facilitated $41M in financing for the acquisition of The Vinyards, a 300-unit apartment property in Colorado Springs, on behalf of a private investor. The financing, provided by Walker & Dunlop, made up 75% of the acquisition cost, with a 4.31% interest rate for 12 years, with nine years interest-only.
"The structure is rare in the current financing climate," Lee said. Lenders were initially hesitant to agree to a long period of interest-only, but by demonstrating the strength of the asset — and the Colorado Springs market — they were ultimately persuaded.
Timing was also critical. "We recommended locking the loan rate prior to the election, which saved our client from a spike when Treasurys jumped 50 to 60 basis points post-election."
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The buyer plans to renovate all of the property's units and upgrade a number of the common amenities, including the clubhouse, the fitness center and the business center. That value-add approach ought to support moderate rent growth, Lee said.
One of the factors driving demand for apartments in Colorado Springs, he said, is a population of commuters who work in Centennial and Aurora, but who prefer to live in north Colorado Springs, where the quality of life is just as good, but costs are lower.
As of the end of Q3, apartment vacancies dropped to less than 4% in Colorado Springs, and over 750 new apartment unit permits were pulled since the beginning of the year, Quantum Commercial Group reported recently. Monthly rents have risen more than 9% over last year’s rate.
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