New Investments

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4-29-18

Below is some information on a new investment opportunity*.    If you are interested in this investment please contact me to discuss the opportunity (akklingher@gmail.com)

Investment Summary:     

Places at Red Rock Apartments is a multifamily community located in the south side, Five Points South neighborhood of Birmingham, Alabama.   The area is a gentrifying part of Birmingham and is home of numerous restaurants and shops.  The area also is in walking distance to UAB (University of Alabama-Birmingham), the UAB Hospital, the Birmingham VA Medical Center, and the Vulcan Park and Museum.  It is a short bike ride to downtown Birmingham or downtown Homewood.   The property has 56 units, 38 one bedroom, one bath units and 18 two bedroom, one and a half townhouse units.  About 30% of the units have W/D hookups and an additional 30% have fireplaces.

The plan is to renovate these units to a standard acceptable to young millennials that currently occupy many surrounding properties.  The current owner has done several exterior improvements including power washing the exterior of the buildings, upgrading the landscaping, and sealing and striping the parking areas.  They have also done sporadic improvements to the units, but no programmatic upgrading.   We plan to repair/replace with vinyl plank flooring, update kitchens with new cabinets, countertops and appliances; bathrooms with new toilets, vanities and tile, improve the utility usage at the property by installing water saving fixtures and energy saving appliances and lighting.   All two bedroom and some one bedroom units will get full washer/dryer packages.   All work will be done on an as needed basis as not all units need all of these items.

Market:

The key to this investment is the location of this property.   The Five Points South area of Birmingham is an attractive gentrifying area of town.  Numerous properties have undergone this type of rehab and all are achieving much higher rents much higher rents.   The properties’ proximity to downtown, the hospitals, the university, and many nightspots make this an attractive area to live.   This area is seen as a place that young professions can live in a vibrant area near downtown, but at a reasonable price point.

Looking at the competitive set this submarket has an overall vacancy rate of 7.1% and an average rent of $1.08 PSF.   The median HHI in a one-mile radius of the subject is $34,518 with a median house value of $236,786.

1 Bedroom Sq.Ft Rent PSF
Places at Red Rock – as is (1 Br/1 Bath) 644 $650 $0.84
Places at Red Rock – Rehab (1Br/1  Bath) 644 $750 $0.87
Mountainside – (1Br/1Bath) 750 $780 $1.04
Element 26 – (1Br/1Bath) 600 $810 $1.35
The Irish – (1Br/1Bath) 600 $825 $1.34
Town crest – (1Br/1Bath) 850 $789 $0.93
Costar 35205 zip code average $725 $1.05
2 Bedroom Sq.Ft. Rent PSF
Places at RR – as is – (2 Br/ 1 Bath) 1,096 $721 $0.66
Places at RR-Rehab- (2 Br/1 ½ Bath) 1,096 $950 $0.87
Mountainside – (2Br/1Bath) 930 $945 $1.02
Element 26 – (2Br/ 1 Bath) 900 $905 $1.01
1707 14th Ave. – (2Br/1 ½ Bath) 1,175 $1,200 $1.02
Flats on 15th – (2Br/1Bath) 800 $925 $1.16
Costar 35205 zip code average $959 $0.97

Investment Projections:

We have not yet completed our due diligence and based on our preliminary analysis we believe the following summarizes the investment;

Purchase Price

3,100,000

Construction Loan

2,015,000

Rehab Costs

400,000

Sponsor Equity

145,000

Contingency/Reserve/Escrow

60,000

Investor Equity

1,500,000

Soft Costs

100,000

Total Costs

$3,660,000

Total Costs

$3,660,000

Total Cost per Unit

          $65,357

Projected Returns:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 IRR Multiple
7% 7% 8% 9% 10% 11% 11% 14.0%

2.2x

The Proposed investment will offer a 7% priority return to investors.  After the priority return the sponsor will split cash flow on a 80%/20% (investors/sponsor) basis.   The hold period is expected to be 7 years but based on market conditions we may sell earlier or hold longer.    The purchase financing is currently undetermined.  The above projections are based on a 65% LTV non-recourse loan which will eliminate any rate risk in this current environment.  However, bank loans providing more leverage are being considered.   After construction is complete and the property is stabilized we will attempt to refinance the property in order to pull out capital to return to investors.  The above is preliminary and updated and more complete analysis will be provided with the PPM.

Ownership:                         

The property will be owned by a single asset LLC.  The managing member of this LLC will be an LLC that is solely owned by Adam Klingher.   Adam is a real estate professional who lives in Chicago and is involved in sponsorship of 21 real estate LLCs that own and manage over 2,000 apartments.  Adam is also mortgage broker financing of apartment properties and has done so for over 25 years.

Management:

We will hire a local leasing/management company to oversee the construction and manage the property on a daily basis.     The sponsors will Asset Manage the property and will receive a 1% asset management fee.

 


If you are still interested in this investment, please email me (akklingher@gmail.com)  your interest and if you would like to reserve a specific amount.   Shares will be offered in $50,000 increments, but ½ shares will be available.   Reservations will be taken on a first come basis.

 

* This is not an offer to sell “investment units” or a solicitation of investment funds.  The purpose of this document is to present information about and to ascertain investor interest in a real estate project.  Interested investors will receive a copy of the Private Placement Memorandum (PPM) as well as a copy of the proposed Operating Agreement.  An offer to invest can only be made to a prospective investor upon his or her receipt of the PPM and Operating agreement proceed, and only in those states in which the offering is exempt from registration under applicable securities law.

The “investment units” described are speculative and involve risk.  This information includes forward looking statements, estimated and projections regarding events that may occur in the future.  Failure of such events to occur can adversely affect the potential investments.