In January 2019, Frontline Holdings (“Frontline”) launched an offering for a common equity stake in a 264 unit, garden-style apartment complex located in the southwest section of Dallas-Fort Worth, TX.
Frontline had already closed on the acquisition in December 2018, thus the offering presented no acquisition risk for CrowdStreet investors. As part of the business plan to reposition the property, Frontline planned to focus on raising rents through premium interior renovations, which were budgeted at approximately $2.4 MM, including $800K for community amenities. Frontline also planned to rebrand the property as an upscale, yet affordable, housing option in the submarket.
At the time of purchase, average rents were 19% below the competitive set, and 46% below class A products in the market. Frontline’s underwriting projections included the renovated units achieving $177 rent premiums over current rates, which would still leave the property priced at approximately 34% below newly constructed, class A units in the market, thus making Chateau on the River an attractive and affordable housing option for tenants.
Upon acquisition, Frontline immediately began executing the business plan. By the end of 2019, the first year of full ownership, it had upgraded 108 of the 192 units planned for renovation and completed major exterior improvements to the clubhouse, pool, and amenities. Occupancy during this first year remained above 90%, and renovated units were well received, bringing premiums of $119, or a 13% increase.
Despite the challenging environment in 2020 due to the onset of COVID, Chateau on the River continued to perform well. Frontline was able to maintain occupancy above 90%, limit the number of delinquent rents, and for the most part, continue making regular distributions to investors.
In Q1 2021, Frontline saw the property move toward stabilization, with occupancy reaching 94% and NOI improving due to continued ability to raise rents, aggressive expense management, and increased social media and marketing efforts. Despite the lingering uncertainties associated with the pandemic, collections at the property remained strong.
In Q2 2021, with the property fully stabilized, occupancy at approximately 98%, and rental rates significantly higher than they were at acquisition, Frontline began to market the property for sale. As a result of this process, Frontline accepted a strong offer, and believed it was in the best interest of investors to exit the investment at this juncture, which negated continued market risk. The sale transaction officially closed in mid-August 2021.
Favorable market conditions and a successful business plan execution created the opportunity for Frontline to exit the investment earlier than planned and achieve favorable returns for investors, including a higher-than projected IRR.
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. Returns are subject to change as a result of contingency holdback/future residual distributions, if applicable.
This report contains explanations of a series of events associated with Frontline Holdings’ Chateau on the River offering that resulted in an approximate 55% (net of fees) absolute return on original equity 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.
The report partially relies upon the sponsor’s explanations, the information contained within sponsor-produced quarterly reports, and conference calls. This analysis is not an assertion of independently verified facts but, rather, is for informational purposes only, to convey CrowdStreet’s understanding of what transpired.
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