Value Add Multifamily Investing, With Elevate Commercial Investment Group

In this webinar, Jorge Abreu discusses a Class C multifamily investment opportunity in the Dallas / Fort Worth area.

Webinar Highlights

• An overview of the Elevate team, led by CEO Jorge Abreu.
• Elevate’s strategy for completing upgrades on value add projects to enable rent increases that drive investor returns.
• How Elevate’s in house construction team and team allows them to take on “heavy lift” projects.
• A review of current market trends in the Dallas / Fort Worth area.
• Anticipated metrics for the current projects.
• Live Q&A with webinar attendees.

Town East Apartments

Town East is a 190 Unit Value Add Multifamily property located in Dallas Fort Worth.

Learn More About Elevate CIG

• Visit ElevateCIG.com

Webinar Transcript

Jimmy: Jorge Abreu with Elevate CIG. So, Jorge, how are you doing?

Jorge: I’m doing good. How are you doing, Jimmy?

Jimmy: Good.

Jorge: Perfect. So, this is a deal-specific syndication that we have. It’s a 506(c) offering. So, credit investors only, and this is multifamily C class in Dallas, Fort Worth. It’s 190 units, Town East Apartments. Just a basic table of contents, what I’ll try to go through here in 20 minutes. I may go through some of this stuff quickly to make sure I get through all of it.

So, first one is gonna be sponsor team. We’ve got a really strong team working on this deal. You’ve got myself, I’m the CEO of Elevate. We’ve been… Me and my partner, Eric, we’ve been investing real estate for about 16 years now full-time. Started in single-family and worked our way up to large multifamily. About 400 million in assets right now under management. This says 5,812 units acquired. We actually closed on another one last week and we’re now over 6,000 units that we’ve acquired throughout Texas, Oklahoma, Georgia, South Carolina, and South Dakota.

And then my partner, Eric, pretty much the same background. And then we’ve got Ash who we partnered on other deals with. He’s got over a billion. So, I mean, between Elevate and IMPEX, we’ve got 1.5 billion assets under management. And then to just put the cherry on top of the team there, we’ve got Tarek El Moussa, is also joining our team. He’s from HGTV. He’s been doing a show on there for years now. And then I think he’s doing three other shows now. We connected a while back and really got to know him and he’s gonna be partnering with us on several deals moving forward.

And then this is just some of our properties that we have under management. Lone Oak is a class A we closed on last year in Weatherford, Texas, which is right outside of Dallas-Fort Worth. We’ve got a really nice property, a 446 unit in Houston, the Graham. Another one here in Dallas-Fort Worth, this one was, or still is 100% vacant. Really heavy lift. So, you can kind of see we go across the board as far as class, you know, we’ve got class A, we’ve got really bad class C stuff. We have an in-house construction team, so we feel very confident taking on a heavy lift.

This is just more of our properties. And then as far as this deal, this is what the projected returns look like for our investors, 6% preferred return is what we’re offering. The average cash on cash is projected to be somewhere each between 8% to 9%. We’re projecting this on a five-year hold, and that would produce a 2 to 2.2X equity multiple. The investor split after the preferred returns is 70/30. And then if we deliver over 18% IRR, it goes to 50/50. The IRR for the investors is projected to be 22% to 24% IRR. You know, you don’t see numbers like this in Dallas, at least not right now with how hot the market is. We’re able to land this deal off-market at a really, really good low basis, which is $90,000 a door, which is very hard to find in Dallas right now, and that’s one of the reasons the returns are as healthy as they are. And then we have a minimum investment of $75,000.

I’m gonna go through property description. So, like I mentioned before, 190 units built in 1959. I do wanna mention that even though it’s built in 1959, most of the electrical and AC units was redone three years ago. So, two-thirds of the property has all new electrical and AC. The other portion was done maybe, I think it was 10 years ago. So, it’s got 15 buildings across 8.3 acres. It’s in a very hot market. Like I mentioned, we got it at a low basis. Our underwriting is extremely conservative. We’ve got a 5.75 exit cap, which if you guys know the Dallas market, properties are trading in the low 4s, even high 3s right now. So, that’s a very conservative exit cap.

So, as far as property details, it’s located in Mesquite, Texas, to be specific. It’s a couple of minutes away from Town East Mall. This is a very desirable area. Mostly renters in this area. So, the occupancies are really high. During our due diligence a couple weeks ago, we went and visited all the comps. We weren’t able to see not even one unit on the comps because they were all full, like 98% occupied, 99% occupied. So, a very strong market.

Here’s just some of the property photos, you know, we’ll be rebranding the property, new signage, we’ll be doing some new exterior paint, upgrading the amenities. You know, they’ve got a really sorry excuse of a playground right now. So, we’re gonna change that. And [inaudible 00:06:59]. Okay. So, I already talked about the location, so I’ll kind of skip through this. You know, Dallas Forth Worth is, is one of the hottest markets in the U.S. right now. Rent growth is through the roof. You know, in our underwriting, we’re still very conservative. We’re not taking, I wanna say Mesquite has had around 12% to 14% rent growth. We have our organic rent growth at 3% across the board.

So, a little bit more about the submarket, you know, renters make up 41% of Mesquite. So, like I mentioned, you do have a lot of renters in this market. So, 8.6% from 2020. You know, if you look at what’s happened this year, I think it’s closer to that 14%. This is a bunch of projects that are going on in Mesquite, a lot of new construction, just a lot of growth overall. Some of the major employers that are close by, you know, AT&T, Target, you got some medical stuff. So, a lot of good employers.

As far as the comps, you can see in the green is where our property is. On the average rents for the one and two bedrooms, then you can see the numbers we’re using in our proforma, which we’re still staying under. The comps Tradewind is the one in gray, which is literally across the street. We walked that one extensively. My construction company actually did work for the past owner of that property. So, we know it very well. It is not nicer than our property at all. And we’re still being very conservative in putting our proforma rents under theirs.

Go through the financials real quick. So, recently, the seller is already receiving $150 rent bumps without doing any upgrades. And we’re essentially projecting to continue to do that and possibly get more as we’re gonna upgrade the interior units, but we didn’t even have to bake that into the proforma. So, anything we get above for our upgraded units will just be extra. Like I mentioned, in the exit cap at a 5.75, very conservative. And then the business plan is gonna be…so, right now, it’s being managed in-house, smaller owner-operator. So, we feel, you know, bringing in our property manager that we work with on almost all of our units and bringing in that professional touch is going to definitely impact with the inefficiencies.

And then like I mentioned, we’re gonna upgrade the interior units, pretty light upgrade. Light fixtures, plumbing fixtures, resurface on the countertops, a new paint scheme, some flooring. I mean, a lot of the flooring right now is actually in good shape. And then the exteriors, we’re gonna paint the exteriors, fix some of the concrete in the parking lot, really fix up the amenities. So, we’re gonna put in a nice playground. We’re gonna put in a nice pergola, and some grills, and then also fix up the laundry rooms.

So, here are the forecasted financials. You can see from year, you know, starting from T12 to year 1, we’re not being overly aggressive on our numbers. And then from year one to two, all the way to five, same thing, not being too aggressive on our projections. This is a sample, what $100,000 investment would look like as far as returns. You can see it’s projecting a 23.3% IRR, and then we do have a preferred equity partner that’s coming in with $5 million of the equity. And in this proforma, we actually had a 9% current rate, which we’ve been able to negotiate that down to a 6%. So, the cash on cash here is actually healthier than what you see now.

And then this is kind of the depreciation. So, it’s gonna come with a very healthy, in that same token, with the preferred equity partner, we’ve been able to negotiate that they will not be taking the depreciation on their $5 million. So, we’re able to push that over to our investors. So, you can see that in year 1, we’re getting about 104% of what our investors would… I mean, that, right? Yes. So, if you invest $100K, you know, in your K-1, you’re gonna get a loss of $104,000. So, that’s pretty exciting.

This is a loan assumption. So, we’re assuming the existing loan, it’s a decent rate, at 3.41. It still has, I believe, seven more years on the loan and our LTV is gonna be 66%. So, once, again, you know, we’re sticking to just being a very conservative investment here. And then we are going to save the supplemental loan. Instead of taking it out now at the purchase, we’re gonna go ahead and wait till we get the NOI up and actually take out the loan in year three, and that would remove the preferred equity partner and really boost up the cash on cash and make it a sweet deal for everybody.

Sources and uses. So, we’ll be into it, you know, $19.7 million. You could see the breakdown there on the preferred equity partner of the common equity. So, we’re raising $3.4 million in equity. CapEx, kind of went over this already, but like I mentioned, interior units, you know, new paint scheme, some of them will get new appliances. Some of the appliances now are in decent shape. All of them will get new fixtures, plumbing, lighting, and hardware. And then some will get the vinyl plank if the floors are not in good shape right now.

Exterior-wise, a little more detail than what I went over before, but all new exterior paint, and like I mentioned, a rebrand, so all new signing package. We’ll restripe the parking lots, fix any potholes, etc. We’ll create an area where the community can go and grill out and, you know, sit there with the family and enjoy it. We’ll do LED lighting throughout on the exterior. We’ll repair any of the metal and steps. We’ll repair any carpentry, really harden the property overall. Some minor stucco and then amenities-wise, I didn’t mention before, we’ll end up adding a dog park, grill-out area, and then the playground.

So, if you guys are interested, you know, the next steps, this is what it looks like. So, we just went through the due diligence. We got the end of March closing, which with the loan assumption, it looks like we may have to push that to mid-April, but we are taking investments right now. And then, you know, as soon as we close, we’ll be executing the business plan. That’s one thing we do very, very well with our construction team. We’re there day one, executing on the CapEx, and then we have several preconstruction and property management meetings before we ever even close on it to make sure we don’t waste any time. And then, you know, five-year exit before the fifth year, depending on where the market is. Pretty much on that year three mark, we’ll look at either an exit or doing that supplemental loan, depending on what looks better, that’s the route we’ll go.

So, if you’re interested… Obviously, you can’t click this, but if you visit our site, Elevate CIG, that’s Commercial Investment Group, so, elevatecig.com, you’ll see a button that says Invest Now, and then you can take a look and see more details. As far as when we close on the property, you know, we religiously send out monthly reports. We like to be really detailed with our communication and reports to our investors. And then we send out quarterly distributions with a quarterly financial report. And yeah, we pride ourselves in our communication with our investors. That’s it. Thank you very much. And I would love to take some questions.

Jimmy: Fantastic. Well, thank you, Jorge. I did just post that link to your Invest Now page on the Elevate CIG website in the chat. So, if you open up your Zoom chat, you can click that link right there. I know it’s impossible to click the link on the presentation when he’s just sharing his screen, but I’ve got the link posted in the chat. So, we do have a few questions here from the audience, Jorge, if you’re ready. Susan asks, “What is the average rent?”

Jorge: The average rent right now is around $850.

Jimmy: Eight fifty. Okay. Let’s see. An anonymous question, a few anonymous questions come in. Let’s see. What is the purchase cap rate of Town East?

Jorge: It is… I wanna say right around 5%.

Jimmy: Okay. And then do you typically do cash-out refi? Will you, in this case?

Jorge: So, we won’t refi, but we’ll do the supplemental, which will act just as a refi. You know, we’ll be able to cash out that supplemental loan, which it’s projecting to be able to pay off the preferred equity partner and also return some capital to our investors.

Jimmy: Another question here asks, “Jorge, could you go over those rent assumptions again? What is the average rent in the area right now? And is there upward pressure on rents in the DFW area?”

Jorge: Definitely, the rent growth in DFW has been insane this year, and there’s no signs of it really slowing down, at least not right now. You know, it’s not… Can’t assume it’s gonna continue, right? It’s not sustainable, I don’t think, at the rate it’s going, but it’s such a good job growth market that we just haven’t seen it slow down much. As far as, you know, this submarket itself, you can see here, so, on the one-bedrooms, average right now is $815. And then our comps are all above that $815. And like I mentioned, Tradewinds is the green one, which is literally right across the street, and that’s getting, you know, $260 more in rent. And then two bedrooms, you know, we’re right under all the comps at $983 right now and then the one across the street’s at $1,321. So, we’re still being conservative, you know, we’re not trying to get the top of the market even though after looking at the comps, it looks like we should be able to.

Jimmy: Yeah. Good answer there. Another question from Susan, she asks, “Can you invest via an IRA account?”

Jorge: Yes, absolutely.

Jimmy: Yes, you can. Okay, great answer there. I’m sure that’ll make her happy. Let’s see. Andy, another question from our friend, Andy, here asks, “What’s the time horizon for this fund, and can an investor stay invested indefinitely?”

Jorge: Yeah. So, this is kind of like the timeline. So, we’re projecting a five-year hold. The investor, when they invest, they’re pretty much investing in the life of the deal, you know, until we exit the deal. And that just depends, you know, it depends on the market. We like to be flexible on that end. We’ve got two deals right now that we’re exiting right on the one-year mark just because market’s so hot, and it makes sense. You know, we’re giving our investors the projected returns that we had projected in five years, we’re giving it to them in one year. So, we like to keep that open. You know, we’ll try to exit before year five, because that’s what we’re projecting here. So, we’ll definitely try to exit before then.

Jimmy: Good. We got time for just one or two more questions. If we don’t get to your question, we’ve got a lot of great questions. I don’t think we’re gonna get… I know we’re not gonna get to them all, but you can submit your question to the Elevate CIG team, Jorge and his team by emailing [email protected]. And you can always go to their website, elevatecig.com to learn more there. Let’s see. One more question here. Can you recap what you do in-house versus what you outsource? I believe you said you have an in-house construction team, but outsource property management, is that right?

Jorge: That is correct. So all the CapEx and construction is done in-house and then the property asset management is also done, you know, in-house, our internal team, but the actual property management is done third party. And then the third party we work with, you know, we’ve got a really good relationship with them. Been working with them for years. They’ve got over 4,000 of our units right now under management. So, it’s a good working relationship.

Jimmy: Good. We’re a little bit over time here, but I’ll get one more question to you and then we’ll cut you loose, Jorge, and move along to our next presenter, Scott. Scott Hawksworth asks, “What are you seeing in terms of cap rates right now in the Dallas Fort Worth area, and do anticipate cap rate compression that we’ve seen in other markets to continue?”

Jorge: Yeah. So, I mean, we’re seeing very compressed cap rates in Dallas, Fort Worth. Do I think that’s gonna continue? You know, I think a lot of it depends on how aggressive the interest rates are gonna go up this year. I don’t see the cap rates going up much. You know, I think the compression may just slow down, but I don’t see a rise in the cap rates.

Jimmy: Well, lots of great questions that we didn’t get to all of them. I’m sorry. But if you have a question for Jorge and his team at Elevate CIG, please reach out to them by emailing [email protected]. And I’ve just posted that email address in the Zoom chat as well. Jorge, thanks for partnering with us on the event today. I’m gonna cut you loose there and wish you a happy rest of the day.

Jorge: Thank you, Jimmy. Same to you, man.

Jimmy: All right. Thank you, Jorge.