In October 2018, Presario Ventures (“Presario”) launched an offering for an under construction 248-unit, Class A multifamily development located in the fast-growing San Antonio MSA.
The offering presented investors with an opportunity to invest in the preferred equity position in the capital stack, which would be prioritized over common equity and in addition to receiving a quarterly preferred return, would also participate in the upside.
The business plan called for the project to be constructed on approximately 18 acres at an estimated total capitalization of nearly $30 million. The project would consist of 229,348 square feet of net rentable area across 12 buildings and offer numerous unit types (i.e., 1bd/1ba, 2bd/2ba, 3bd/2ba). Furthermore, Presario planned for the project to be equipped with luxurious community and in-unit amenities. The common amenities would include a pool with beach entry, a fitness center, and a sports court, while the unit amenities would include 9’ ceilings, private balconies, and wood-style flooring.
Infrastructure and access road excavation on the project had already begun in August 2018 and site work was expected to begin in December 2018. Leasing was targeted to commence in August 2019, with project completion estimated for Q1 2020, and project stabilization anticipated in Q1 2021. Presario intended to leverage the lack of Class A supply in the area to fuel high occupancy and rent rates for the project.
Mobilization and construction commenced in early January 2019 and progressed according to plan over the following months. By end of Q3 2019, all buildings had gone vertical, and framing was complete on the clubhouse and first four buildings. Presario was planning to begin pre-leasing efforts quickly in order to keep up with the demand from prospective residents who were already stopping by the construction site inquiring about availability. The leasing office was scheduled to be completed by December, but Presario was planning to hold off on the grand opening until after the holidays and completion of the first building.
In Q4 2019, inspections were held up by the fire marshall which is the reigning jurisdiction in the county, resulting in a slight delay to the original delivery schedule. In February 2020, Presario announced that the leasing office and first building were finally open and that the project had its first resident move-in.
Although certain implications from COVID-19 slowed the project’s progress, causing delays and requiring adjustments to the original timeline, Presario continued to make consistent strides over the subsequent months, and in August 2020 all buildings were complete and had received their certificate of occupancy. In summer 2020, Presario had also decided to reposition property management by bringing in Greystar to better boost leasing in the dynamic environment, with the hopes of reaching the adjusted goal of stabilizing by Q2 2021. The property finished the month of August 2020 at approximately 36% leased and 28% occupied, with these figures increasing to 41% and 35%, respectively, in September. At the end of Q3 2020, market rents and effective rents were exceeding proforma market rates.
In May 2021, Presario informed investors of a successful exit by way of sale of membership interest. This was made possible due to a refinance opportunity that the development partner was able to obtain, which provided an attractive valuation that Presario believed would have been virtually impossible to replicate in a traditional market rate transaction at 70% occupancy. Presario acted quickly to negotiate an exit with the developer partner at a basis well above the original proforma valuation which contemplated a sale in Year 5.
Presario successfully adjusted the business plan when necessary, mitigating the impacts of challenges arising during the investment hold. The high-quality nature of the asset and Presario’s execution led to an opportune early exit, achieving 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.
This report contains explanations of a series of events associated with the Exeter Place (Pref Equity) offering that resulted in an approximate 17% (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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