In May 2018, Presario Ventures (“Presario”) launched it’s a ground-up development of a Class A multifamily project on the Marketplace, Located in in Lockhart, Texas, this is a six building, garden-style, 129,064 square foot (net rentable 126,552 square feet), 140 unit complex with 306 parking spots. The project was financed through a HUD development loan with 40 year amortization and favorable terms. The development schedule projected completion by end of Q3 in 2019, with full stabilization by end of Q4 in 2019. Presario projected rental rates of $1.23 per square foot and a sale at the end of year five.
Presario’s market analysis indicated that there was shortage of market-rate apartments based on demand level, which was only projected to grow, and the only market rate comparable property in the area was 10-years old with a 98% occupancy.
Construction and Lease Up
Presario commenced construction on schedule in June 2018 and was completed on schedule in August 2019. At construction completion, the property was 91% leased and 81% occupied. After the first month of operations, Presario ended September at 95.7% leased and 92.1% occupied with effective rents at $1.12 per square foot. The lower square foot rental rate was due to lease signing incentives of one month concessions for new leases.
First Year of Operations
Presario finished its first year of operations with 97.9% leased and 95% occupied by the end of Q3 2020. At the end of Q3 effective rents were $1.08 per square foot. The lower average rental rate was due to continuance of the initial rental concessions and COVID-related rental delinquencies. Even with the lower rental rate, Pesario was able to achieve a lower expense ratio and higher utility reimbursement ratio than provided for n net operating income (NOI) increase of 7.2% from the pro forma.
Second Year of Operations and Early Sale
At the end of Q3 2021, the Stanton was 100% leased and 100% occupied with an average effective rental per square foot of $1.16, a 7.4% increase from the first year of operations. Market rents rose above the projected $1.27 per square foot to $1.45. Management responded by increasing rates for all new leases to $1.45 per square foot. The lower effective rental rate was due to additional COVID bad debt. The expense ratio was approximately 5% higher than the pro forma but the NOI remained in line with the projections. Due to the increase in market rental rate and high occupancy, Presario decided to sell the asset earlier than projected in Q3 of 2021.
Successful execution of the business plan coupled with favorable market conditions resulted in 100% occupancy with an average rent of $1.38 per square foot, 8.7% above the projected rent. The sale produced an IRR that exceeded the original 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 The Stanton offering that resulted in an approximate % (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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