In January 2017, Windmill Investments, LLC (“Windmill”) launched an offering for a 604-unit, value-add, Class B- multifamily apartment community located in Columbus City, Ohio.
Windmill secured the property through a direct relationship of the seller, who had recently invested nearly $5 million upgrading common areas and facilities, as well as 92 units. Windmill’s business plan called for a value-add program that would see the remaining 512 units upgraded at $3,000 each over the first two years of the hold. Planned improvements included additions of new appliances, countertop replacements or resurfacing, and updating cabinets. The implementation of these upgrades was expected to translate into underwritten monthly rent increases of $95 per unit.
Strong Performance Early On
The transaction officially closed in early May with more favorable debt terms than Windmill had underwritten, including a lower interest rate and higher loan amount. Upon takeover, Windmill immediately raised rents by $80 to bring them to what they believed were fair market rents. Windmill’s market studies also indicated that rents could further be increased by another $100 after the implementation of the capital improvement plan. While typically a full quarter of operations would be required prior to making a distribution, due to extremely strong operations and performance, Windmill made an early 8% annualized distribution for Q2 2017.
Only five months after acquiring the property, Windmill informed investors that the Columbus market had been very active, cap rates had compressed, and as a result values were trending significantly higher in comparison to when the property was put under contract. Windmill received several BOVs (Broker’s Opinion of Value) which indicated that the project could potentially be sold now at a price that was not far off from the targeted sale value Windmill had originally underwritten for a full five-year hold period.
Besides some uncertainty around real estate taxes and the county’s reassessment of the property, Clear Point Gardens continued to perform well, capturing higher effective rents and generating plenty of interest from potential buyers. Windmill waited for an offer that was compelling enough, ultimately placing the property under contract for a price exceeding the sale value originally targeted for the end of the five-year hold. The transaction officially closed in early August 2018.
The attractive basis in the property coupled with extremely favorable market conditions created the opportunity for Windmill to successfully exit the investment approximately four years earlier than planned, achieving a higher-than-projected IRR for investors due, in part, to the early exit.
*Net of fees.
This report contains explanations of a series of events associated with Windmill’s Clear Point Gardens offering that resulted in an approximate 52% (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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