In June 2017, Vukota Capital Management launched an offering for a 312-unit apartment building in Irving, Texas. The business plan called for adding revenue through a market-supported value-add program. Over the first two years, Vukota planned to spend approximately $2.4 million on unit upgrades and achieve average monthly rent premiums of $142. The renovation plan included new vinyl plank flooring in all units, black GE appliances, modern lighting and plumbing fixtures, resurfaced countertops and backsplash, and two-tone paint.
Renovations Behind Schedule
Renovations started later than expected due to the finalization of scope and stabilization of occupancy was taking longer than anticipated. Renovations began in Q1 2018, but as of Q2 2018, only three units had been renovated, with another ten units in progress.
As of Q1 2019, 62 units had been renovated (~20%). The upgraded units were remaining vacant longer than projected due to their higher price point and the sensitivity of the current demographic. This negatively affected occupancy, which decreased to 74% in Q1 2019. In Q2 2019, Vukota elected to cease renovations after only 69 units had been completed. The property was having cash flow issues as a result of the renovations being significantly behind plan. Vukota decided it would continue focusing on leasing efforts and improving operations, and explore an early sale of the asset.
Given the saturated and competitive submarket and the inability to turn and lease upgraded units at premium rates as quickly as projected, Vukota decided it was in the best interest of investors to pursue an early exit. It began to market the property in late 2019 and Bridgeport Apartments was officially sold in April 2020, approximately seven years earlier than planned.
Lack of execution, renovation delays, and a competitive submarket forced Vukota to deviate from the original business plan and exit the investment approximately seven years earlier than planned, achieving lower-than-projected returns for investors.
*Net of the most onerous fees charged to clients of CrowdStreet Advisors, LLC, our registered investment advisor subsidiary; an investor’s actual returns on a realized investment may differ.
This report contains explanations of a series of events associated with the Bridgeport Apartments offering that resulted in an approximate 4.6% (net of most onerous fees) IRR to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s business plan execution, are not.
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