Location: Tempe, AZ
Property Type: Multifamily
Number of Units: 441
Acquisition Date: April 8th, 2014
Status: Sold by Gelt on September 29th, 2015
On April 8th 2014, Gelt Mill Holdings, LLC, acquired 441 unit Mill Pointe/201 West in Tempe, Arizona for $27,350,000. This equated to a basis of $62,018 per unit and $78.94 per square foot. The project was acquired as two separate buildings, ?Mill Pointe? consisting of 218 units and 140,204 rentable square feet, and ?201 West,? consisting of 223 units and 206,272 rentable square feet. The asset is strategically located in Tempe, Arizona at the intersection of Mill Avenue and the 60 freeway, and is in close proximity to Arizona State University (83,000 students) and high profile employers. We purchased the asset from Bank of America Development Corporation, and obtained favorable financing from New York Community Bank with a historically low interest rate fixed for five years, including one year of interest only payments. Knowing that the property was previously under contract for a substantially higher price months earlier, and looking at the basis that similar deals in the area had traded for during peak market conditions, we knew we were making money on the buy.
The project presented us with a value add opportunity both through superior management and various capital expenditure projects. The previous ownership was running the 441 units as two separate adjacent properties. By merging the two assets into one community (?The Huntington?) we were able to close one of the leasing offices and turn it into a 2 bedroom unit. This move added an extra income- producing unit to the property and also allowed us to achieve greater economies of scale as it pertains to payroll, administrative and marketing expenses. We also improved the pool area, renovated the leasing office, added accent paint, and installed new signage. It was apparent upon takeover that there were tenants not paying rent and not following community rules, so we quickly moved to evict a significant portion of the property and also added nightly security for a period of time. Within months, the property had a new feel and long time residents were grateful that we made their community safer.
In regards to the numbers, when looking at the T12 from the end of 2013 (previous ownership) compared to the T12 from July 2014 to August 2015, we were able to cut advertising expenses by 53.73%, admin expenses by 26.89%, payroll expenses by 15.96%, and vendors & materials expenses by 22.77%. Annualizing the trailing 3 months of income for June-August 2015, we increased our effective gross income by 12.28%. This was accomplished through 9.9% rent growth, a net positive collection on bad debt, and less vacancy and concessions. We increased our NOI from the previous ownership?s $1,462,689 (including $250/reserves) to $1,992,289, a 36.23% increase!
We closed escrow on September 29th at a sale price of $34,600,000 ($78,280/unit and $99/sf) netting our investors an approximate 54% cumulative return, and a 36% annualized return over the 18-month period of ownership. Gelt investors will receive an excess distribution in the months to come, further increasing their total return.