THE PROPERTY
The Bull Run Apartments are a 13-unit garden-style complex in Fayetteville, NC. The 2.79-acre four-building community was built in two phases, with the first two buildings completed in 1978 and the last two in 1989. Nestled in a quiet residential neighborhood, the property is nine miles from Fort Bragg and minutes from the I295 outer loop. The Bull Run Apartments offers 12 one-bedroom units and one two-bedroom unit.
THE CHALLENGE
Purchased two years prior, the apartments were the owner’s first venture into commercial multifamily and syndication. Since buying Bull Run, the owners had grown their portfolio significantly and were ready to cash out the asset.
The apartments had been professionally managed during the owner’s entire hold time. Still, the initial management company had not managed the property well and was replaced after the first year of ownership. Shortly after switching companies, COVID 19 complicated raising rents and addressing delinquencies.
There was no significant deferred maintenance, and all the property’s systems were in working order, but several roofs and HVAC systems were nearing the end of their useful life. The owners completed light unit upgrades during the tenant turnover process, but this only resulted in seven of the 13 units being updated when the property was brought to market.
The most significant challenges in selling the Bull Run Apartments would be the unit mix and the historical market capitalization (cap) rate. A Class C property consisting primarily of one-bedroom units would be expected to trade at approximately $60K a door, translating into a seven cap.
The owner’s minimum sale price for the Bull Run Apartments is $850,000, which would require trading at a 6.5 cap rate. While that would not be considered aggressive pricing, it would be higher than the market’s historical yield for a property like Bull Run.
The Sweetwater team identified several issues:
– Rents below market rates
– Dated units
– The expected life span of several major systems
– Minimal focus on curb appeal
– Unit mix
– Property age
– Historical market cap rates
– Coordinating between an out-of-state owner, 3rd party property management, and prospective buyers
THE GOAL
Obtain the highest and best possible price for the Bull Run Apartments.
THE SOLUTION
The solution required a two-fold approach. First – a superior marketing plan needed to be developed. Second – the property needed to be put in front of the right buyers that understood what a fantastic opportunity the Bull Run Apartments presented.
The Sweetwater marketing team, working with analysts and investment sales brokers, put together a complete promotion package including photos, 3-D tours, aerial pictures and videos, flyers, promotional video, a dedicated landing page, and a virtual deal room. As usual, the marketing team cut no corners and produced high-quality materials highlighting the property’s value proposition.
Once the marketing plan was complete, the first advertising blast was sent out. Several thousand investors received direct emails introducing the diverse group to the Bull Run Apartments. The marketing was not limited to the company’s internal list of investors – it was also blasted out via Real Capital Markets and advertised on Crexi, LoopNet, and CoStar.
With over ten thousand impressions and several hundred views, it was not long before there were well over a hundred valid leads. The investment sales team followed up with each lead and was able to present multiple offers to the seller within a short period. The apartments were under contract within a few weeks, but this first deal did not make it to closing.
After a few short months, the property was under contract again – this time, the deal would go all the way to closing and for a higher price than the first contract. The investment sales team worked with the buyer’s agent and the owner’s property manager to ensure a smooth inspection period. Although the process was not without challenges, the Sweetwater team worked diligently to ensure all issues were addressed promptly and all parties were satisfied with the results.
When the title and insurance work were completed, the property closed for an all-cash price of $1,100,000.
SUMMARY
The marketing team and analyst created a fantastic product that the investment sales team leveraged to find the right buyer and net the seller the best possible price.
The Sweetwater team worked together to yield the seller significant gains over their minimum price of $850,000.
The Sweetwater team was able to net the seller an additional $250,000, or 29.4% more than their minimum price of $850,000. At $1,100,000, the exit capitalization rate for the Bull Run Apartments was 5.2, and the price per door was $84,615 – a 41% increase over the historical price per door.
