In June 2016, Arrowpoint Properties (“Arrowpoint”) launched an offering for a 9-story, 164-unit high-rise apartment complex located in Haverhill, MA.
Arrowpoint secured the property through a direct relationship with the seller prior to it coming to market at a price that was significantly below replacement cost. The business plan contemplated some exterior renovations, interior unit upgrades, increasing rents, and, most notably, significantly decreasing expenses during the first one to three years of ownership. After approximately three years of operations, Arrowpoint planned to initiate a supplemental loan with the lender, which would allow it to return up to 25% of the initial capital back to investors. A healthy cash-on-cash return was anticipated immediately from the acquisition.
Strong First Year of Operations
In its 2017 annual overview, Arrowpoint reported that the first year of ownership had largely been a success in terms of the progress made. The exterior of the property was given a much-needed facelift, improving the overall appeal of the building. Additionally, a new property manager was hired, occupancy was maintained at a high level of 97-98%, and leases were renewed at an average increase of 3-5%. The only small downside was that a commercial tenant vacated their space in September after signing a four-year lease earlier in April. Arrowpoint planned to pursue legal action for breach of lease and would re-market the space to find a new tenant.
Second Year of Operations
In its 2018 annual overview, Arrowpoint reported that occupancy remained strong in the first half of 2018, but dipped slightly to 93% in the second half as a result of slower leasing season and some staffing issues that had already been addressed. On average, the property continued to be successful in obtaining increases of 3% on average per turn and renewal. A portion of the commercial space that was occupied for over 15 years by a doctor became vacant when the doctor retired during the year. Arrowpoint decided to convert the space into three additional residential units and was in the process of obtaining approval from the city.
Early Sale and 1031 Exchange Offer
Arrowpoint reported that it had executed a purchase and sale agreement for the property at a sale price above pro forma. Additionally, it informed investors that a replacement property had been identified to conduct a 1031 exchange, which would provide interested investors with an opportunity to reinvest their capital.
Good business plan execution and favorable market conditions created the opportunity for Arrowpoint to successfully exit the investment approximately four years earlier than planned, achieving strong 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 River's Edge offering that resulted in an approximate 30.8% (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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