Greg Cooper J.D.
July 9, 2022
All value-add multifamily projects begin as complex, theoretical financial models on a screen, developed by operators looking to build portfolios and wealth. The models are the framework for business plans to upgrade the assets in order to drive rent growth, NOI and ultimately value so that both the sponsors and investors can achieve their respective returns. There are many potential failure points along the way, and until an asset is successfully disposed of, it’s a work in progress.
At Offerd, as we go through the multifamily acquisitions process—researching markets, sourcing the best assets in each market, conducting pricing discovery, getting assets under control and ultimately closing on the deal—we know that the much of the real work begins after we close. That’s why it’s helpful to check in periodically on a value-add asset after close, see how things have gone, and how they’re going.
For example, consider a property we closed in February 2021 with Cross Mountain Capital, one of our best partners.
Ingalls Grove is a 54-unit apartment complex in Edgewater, CO.—a suburb of Denver, nestled between the cities of Denver, Wheat Ridge, and Lakewood. This submarket is strong with excellent fundamentals and demographic growth patterns. It’s got a small-town vibe while having the perfect setting for development and investment, thanks to everything from rapid gentrification to pandemic-accelerated migration. Housing prices averaging over $500,000 and a lack of inventory have also kept rental growth rates high.
We sourced this off-market, 54-unit, Class C workforce complex and brought it to Cross Mountain, a vertically integrated real estate manager and developer that specializes in repositioning assets and improving local communities. The purchase, renovation and optimization goal was to perform a heavy value-add and transform the property into a Class B asset and provide investors with over a 150% return on their investment during the hold period (2.59x equity multiple) and an IRR north of 20%.
Again, that was in 2021. As we all know, a lot has happened since then—in Colorado and the rest of the world. So what’s the word on Ingalls Grove now?
In a word: Great.
First, in keeping with the renovation and the rebrand, the property has been renamed—it’s now Sloan’s Lake West. But there have been many more changes.
The neighborhood has outperformed our highest expectations. A lot of the existing inventory is older, and most of the new development in the area is much more expensive. With the extensive rehab we’ve performed, this project fits comfortably between the older assets and the new construction, combining the best of the past with the potential of the future.
Of course, no large renovation project like this is entirely free of problems. In this case, the initial property manager we hired to perform the renovations did work that was not up to our standards. So we opened up a competitive process to seek other options, and considered a dozen bids from local contractors. Eventually, we selected a great GC, and worked together to execute on the business plan and turn the property around. We are pleased to report that the plan is moving forward with deliberation, precision, and speed.
That leaves us with the one question that often comes up during and after these projects: How close are we to the original plan? And are we on schedule in terms of time, quality, cost and occupancy?
No, we’re not on schedule. We’re ahead.
The renovation is moving faster than expected—in fact, we’re about six months further along than on than our original forecast. The quality is top-notch, and it’s reflected in the strong leasing activity. Occupancy has been steady despite all the construction: There was a bit of a lull between November 2021 and February 2022, due in part to seasonal slowdowns and fears of a Covid resurgence, but we’ve experienced brisk progress since March. Today, we’re at 100% occupancy and on track to reach projected investor returns well ahead of schedule.
Sloan’s Lake West is now a neighborhood fixture, and we’ll keep at it. And through it all, working with Cross Mountain Capital has been truly rewarding. It’s why we’re working with them on another project not far away. Stay tuned for updates on that one.