The EASTBROOKE STORY
ASKING PRICE $24,000,000 20% Down Payment Seller Financing
Eastbrooke Apartments in Burlington, NC is a hybrid multifamily apartment complex community consisting of 142 existing 1970’s vintage units and a 90-unit new construction project. The 90 units are comprised of three 30 unit buildings delivered in three separate phases. Phase I has been completed and is in the lease up stage. Phase II has just begun and Phase III should ramp up sometime in August 2019.
OWNER FINANCING EXPECTATIONS
Due to the seller’s love for the real estate business, they are looking to “stay in the game” for the long haul, by owner-financing both the existing and new construction units. Lending expectations include a collective Loan-To-Value ranging between 70-80%, with an interest rate of 4.75-5.25%, and interest only payments for 12-24 months. For the existing units, seller willing to consider deferring the start of monthly payments for 30 days after closing to allow for acclimation of new owner and management team. As each of the new construction buildings come online – payments will be deferred from CO for 90 days to allow lease up period.
Existing 142 UNITS
As of January 1, 2019, 41 of the existing 142 units have been remodeled within the last two years and branded as “Deluxe” units (new carpet, fixtures, kitchen cabinets, countertops and new appliances (appliances where necessary) while the remaining 101 units are currently branded as
“Classic” units and are yet to be renovated. To go from a Classic to a Deluxe unit, estimates call for a $3,000-$5,000 per unit interior renovation. Per the January 1, 2019 rent roll, Deluxe rents average approximately $100 more per month across all unit types. The seller is willing to “finance-in” the cost of renovating the remaining 101 Classic units with an acceptable offer and complete the remaining work with their renovation team.
VALUE-ADD OPPORTUITIES WITHIN THE EXISTING 142 UNITS
Assuming the remaining 101 Classic units are brought up to the Deluxe standard, Gross Potential Rent for all 142 units based on the current high rent achieved for each unit type would be $1,287,600. The T-12 profit and loss report through December of 2018 demonstrates net rental income of $956,923. The $330,677 income difference represents $4,725,000 in equity
growth at a 7% Cap Rate. Please see the excel document entitled “Rent Roll and Financial Data through December 2018” in the due diligence documents which walks through the entire financial analysis.
ADDITIONAL OPPORTUNITIES TO DRIVE NOI
As of this writing, the existing 142 units do not contain washer/dryer hookups and there is no laundry facility on site. Building out the existing vacant management office into a laundry facility conservatively projects an additional $1,500 in monthly income. Combine that with $75,000 in annual water utility recapture (by sub-metering) the projected equity growth at a 7% Cap Rate equals $1,325,000. With an acceptable offer, the seller is willing to build-out the laundry facility and sub meter each unit.
NEW CONSTRUCTION UNITS
Three 30-unit buildings will be complete by the late summer of 2019 and consist of 36 one bed/one bath units and 54 two bed/one bath units (90 total units). The first building is currently under construction and is expected to be complete in April of 2019. With asking rents for the one bed units starting at $750 and $850 for the two bed units, the minimum gross potential rent for the new construction units equals $874,800.
TAX ADVANTAGE – ECONOMIC OPPORTUNITY ZONE
Eastbrooke Apartments is located in a North Carolina Economic Opportunity Zone. This
legislation was passed on December 22, 2017 as the Tax Cuts and Jobs Act was signed into law. It allows investors extraordinary tax benefits by investing in an Opportunity Zone. These include:
- Temporary tax deferral for capital gains reinvested in an Opportunity Zone
- Step-up basis for capital gains reinvested in an Opportunity Zone
- – Permanent exclusion from taxable income of long-term capital gains
Please see the document entitled “Opportunity Zone Information” in the due diligence documents tab for additional details on this program.
ADDITIONAL INCOME STREAM
The above building is located at the center of the property and has been vacant for several years. The community playground is located immediately behind the building and boasts of enough space to build-out additional tenant-focused amenities (pool, barbecue pits, etc.).
The entire building needs to be renovated which would allow for the first floor to be converted into an over-sized community laundry facility. There are no washer/dryer connections in the units making an onsite laundry facility even more appealing. Most residents currently take their laundry to an off-site facility adjacent to the property.
The second floor can be converted into an office and/or additional renting space. There is enough room for a new 3 to 4 bedroom unit or large office. The community currently uses two rent-able units as leasing and maintenance offices.
MECHANICAL & UTILITIES
MECHANICAL, UTILITIES & EXTERIOR FEATURES
All units at Eastbrooke include central heating and air. Tenants pay their own electric bill and the owner currently pays for the water.
The owner is replacing the exterior street lights with LED lighting which helps contribute to a safe community and in turn is estimated to save about $6,000 per year in utility expense. 8 of the 16 buildings have shingle roofs that were replaced in October of 2018. The remaining 8 roofs are metal and in good condition.