Integrity • Passion • Excellence

Case Study

Newnan Estates is a 53-unit, C-class, garden-style apartment community in the fast-growing city of Newnan, Georgia—a suburb 40 minutes outside of Atlanta. The property was built in 1976 and consisted of 52 two-bedroom apartments and one three-bedroom apartment. The property also included a small pool, a playground, and in-unit washer/dryer hookups.  

The property was an off-market deal sourced through cold calling thousands of owners throughout the Southeast. The group who previously owned the property had recently replaced their General Partner after questionable financial purchases and mismanaging the property. We acquired the property at 80% occupied with 9 down units and 14 unrenovated units. It was significantly underperforming due to a lack of marketing, capital, and professional oversite. Due to this distress, we were able to purchase the property at a significant discount. 

The property was purchased on February 23, 2021. The acquisition price was $4.20mm ($79k/unit) with a projected $0.78mm ($15k/unit) capex budget. Our business plan included the five primary steps shown below. 

  1. Acquire — purchase distressed or mismanaged assets.
  2. Improve — renovate the 23 unrenovated units, add low-cost amenities, refresh the curb appeal and optimize the performance through better marketing, improved vendors and professional management. 
  3. Refinance — once stabilized, secure long-term financing to return +75% of original equity invested. 
  4. Cash Flow — With a significant portion of investors’ equity already returned, hold the asset for 5-10 years to benefit from appreciation and strong cash on cash returns. 
  5. Sell — With long-term debt in place, we will be able to maximize our exit price without an obligation or pressure to sell.

The nine (9) previous unhabitable units were all renovated and rented initially at $1,200 per month within the first four months of acquisition. Prior to the one full year of ownership, the additional 14 classic units were renovated and now being rented for $1,400. That is over a 40% increase versus our underwriting.

Beyond implementing the projects specified in our underwriting, we also pursued other value-add initiatives that represent pure upside. 

54th Unit: We applied and received for a special zoning exception to turn the three-bed and defunct common laundry area space into brand new two (2) two-bed units for a 54th unit at the property. This added over $125k in value to the property, net of cost.

Data Revenue Share: We negotiated an internet revenue share agreement with a local provider. As of today, the agreement provided ~$125 of reoccurring monthly revenue and save us ~$100 per month on our own service. With zero capital outlay, this provides ~$50k of value to the property and represents a small single piece of low hanging fruit as we continue to drive operating income wherever possible.

Although market tailwinds have been strong, this natural appreciation was only 1 piece of the equation to outperform our projections to the magnitude that we did. Ultimately, we executed on the business plan in a very meaningful way, which was indicative in the valuation gain:

  • 24 units were renovated, which make up 45% of the property in a 1-year period
  • NOI grew 89.5% since acquisition on a trended T-3 basis for refinance NOI ($260,900 to $494,287)
  • Weighted average rent premiums for the property on renovated units grew $367 or 42.9% from in-place rents ($856 to $1,223)

In just over 18 months we were able to increase the value of the property from $4.2M to $9.2M with ~$1.1M of capex. This value increase allowed us to refinance the property and return everyone’s original investment in September…AND reserve cash for any upcoming unexpected needs. The new 10-year 5.05% fixed rate loan also has five years of interest only. This long-term fixed rate debt provides security and stability for the remainder of the hold period while also facilitating consistent and reliable cash flow for the foreseeable future. 

Our updated projected investor returns, (assuming $100k investment) are as follows:

  • IRR: 26-30%
  • EM: 3.16x ($316k)
  • Profit: $216k
  • Target Exit Date: 2030-2032
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