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Why Renovate a Fully-Leased Building?

Because in a value-add investment play, you can't overdo it. And that's why the Donaldson Group is getting to work after a big acquisition. The firm's John Majeski (left, with NAI Michael's Wayne Curry at a recent Bisnow event) says his firm is hoping its track record will lead to another investment triumph with the 864-unit Cider Mill apartments in Montgomery Village, which Donaldson and partner Angelo Gordon bought earlier this year for $110M. Even though Cider Mill is fully occupied, John says there's more work to be done, to the tune of $15M in renovations. So why try to update an already successful property? Because in the right submarkets, there's big upside in rent growth, John says. And Montgomery Village is primed for that, he tells us, with newer amenities and projects like the Lakeforest Mall redevelopment on the way.

John says mismanaged, distressed or undercapitalized apartment projects can net big returns for investors willing to roll their sleeves up and transform them. If a property is bought at the right price in the right submarket (Donaldson prefers the VA and MD suburbs, John says), a little TLC can not only raise occupancy but yield solid returns on the exit. Take the Heather Hill apartments in Temple Hills, which Donaldson bought in 2010 for $83k per unit. After performing routine interior upgrades and an update to the building's leasing center, Donaldson sold the asset for $124k a unit last year. But part of the success is due to the submarket, John says: "We won't buy in a submarket that we can't overcome."