Location: Tempe, AZ
Property Type: Multifamily
Number of Units: 240
Acquisition Date: September 6th, 2013
Status: Sold by Gelt, Inc. on August 27th, 2015
On September 6th 2013, Gelt Ventures, LLC, acquired 240 unit Versante Apartment Homes in Tempe, Arizona for $15,000,000. This equated to a basis of $62,500 per unit and $81.18 per square foot. The project was built in 1971 and consists 13 buildings with 184,752 of rentable square feet, and is in close proximity to Arizona State University (83,000 students) and many high profile employers. The asset was distressed at the time of sale?the seller was a lending entity who had foreclosed on the previous ownership. We financed the property with a 12 year, 75% LTV loan from New York Community Bank. The former ownership had acquired the property for $14,000,000 in 2007, and invested $7.2 million dollars into the property, adding upgraded flooring coverings, HVAC units, new appliances, fixtures, countertops and cabinetry. They also upgraded site lighting, exterior paint, asphalt pavement resurfacing and redevelopment of the community clubhouse. Observing not only the basis that the previous ownership was in to the property for, but also the replacement cost for similar product, we knew we were ?making money on the buy.?
We also observed management inefficiencies, particularly in regards to expenses. In looking at the trailing 12 months of operating statements from July 2012 to June 2013 (before we took over), the property was being run for approximately $1,170,000 (before capital items) in expenses annually which equates to about $4,875/door. We knew that that these expenses were ?above market? and partnered with Phoenix-based management company Allison Shelton to achieve greater expense efficiency. In looking at the trailing 12 months of operations from August 2014 through July 2015 (Gelt Ownership), we achieved expenses that were 16% lower on our payroll costs, 56% lower on our marketing costs, and 65% lower in R&M costs, than what was being achieved when we took over. We ran the property for $1,028,000 (4,286/door) for the year, which is a 12% total reduction in expenses. At a 5.6% capitalization rate, this increase in NOI due to expense cuts equates to a $2,512,000 increase in property value. Additionally, we were able to increase our revenue through a decrease in delinquency (more stringent renter policies) and an increase in market rent and renewal rents through savvy management and revenue maximization software. Additionally, we increased other income with the addition of carports revenue and obtaining more laundry income. Our trailing 12 total revenue through July of 2014 was 13% higher than the T12 revenue when we took over the property. And finally, our Net Operating Income before reserves in July 2015 was $1,145,610, $387,370 higher than T12 NOI upon takeover.
We closed escrow on August 27th, 2015 at a sale price of $19,500,000 (81,250/unit, $105/sf), netting our investors a cumulative return of approximately 55%, and an annual return of approximately 29% over the 23-month ownership period.