In December 2018, Creative Realty Partners, Inc. launched their offering for The Oaks at San Jose, a 200-unit, multifamily property located in Jacksonville, Florida.
As part of the business plan to reposition the property and bring rents to market, Creative Realty Partners planned to implement a value-add strategy and upgrade both the interior units and exterior appearance of the property, as well as the community amenities. Approximately $2 million was budgeted for these upgrades, and Creative Realty Partners planned to renovate 149 of the 200 units over an 18-month period. The successful execution of the CapEx program was projected to increase rents by 23%, allowing Creative Realty Partners to target an exit after an estimated two-year hold period.
Renovations & Lease-Up
Upon closing, Creative Realty Partners quickly began executing the business plan. By the end of the first quarter in 2020, 44 units had been renovated at costs within budget, achieving rent premiums between $150-170 per month. However, Q1 2020 also saw increased delinquencies, a slowed renovation strategy, and softening in the rental market due to the onset of COVID-19. As such, management adjusted marketing and rental rates to be competitive with the market, and renovated units began to see monthly rent premiums decrease to approximately $135. By late 2020, although only 50 units had been renovated, the property was 85% occupied, rents were averaging $1.40 psf (beating the submarket), rent relief funds had been applied for, and the asset was approaching stabilization.
Q1 2021 saw the asset stabilize with occupancy of 92% and premiums on renovated units achieving $75-170 per unit. Rental rates had increased to $1.44 psf, NOI (net operating income) had begun to exceed budget, and property improvements to both amenities and interiors continued. Despite the improved performance, delinquencies and collections still remained an issue at the property as a result of tenants being protected by the federal eviction moratorium.
With strong market demand and the asset’s performance metrics continuing to strengthen, Creative Realty Partners began to market the asset for sale prior to completion of the planned renovation strategy. Ultimately, Creative Realty Partners received 14 offers and accepted an offer significantly above the originally underwritten Year 2 exit valuation.
Favorable market conditions and a successful business plan execution created the opportunity for Creative Realty Partners to 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.
This report contains explanations of a series of events associated with the The Oaks at San Jose offering that resulted in an approximate 26.5% (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.
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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