When the SSRE real estate team evaluated this property in 2019, they knew they found gold. With a purchase price of $6.2M, the valuation was significantly under comparable buildings in the surrounding area at $194k per door. With a game plan to remodel the units, freshen up the landscaping, and enhance the building’s curb appeal, SSRE was confident in its ability to quickly drive value in a cost-effective way. After acquiring the property in October 2019, SSRE was able to swiftly execute this plan and flip it within just two years. The property was sold in October 2021 for $8.65M, earning SSRE a 157% ROI!
Gaining a Foothold in a New Market
After years of analyzing the best markets for future growth, SSRE purchased its first asset outside of CA, Villas on Olive in Peoria, AZ, for $36.7M in December 2019. SSRE chose AZ, specifically Phoenix, as its first new market for growth outside of CA because of its compelling economic and demographic trends, which have not disappointed. The Villas also presented a unique opportunity to acquire a luxury resort-style community with BTR units at an excellent value. While the entire AZ market has taken off, this specific property has outperformed all others by appealing to renters who are willing to pay a significant premium to enjoy the comforts and advantages of a new home without all the maintenance and upkeep. Since the acquisition, rents are up over 25%, and we recently received an unsolicited offer to buy this property at $70M, which would have generated an absurd 300% ROI! Since hitting this homerun with its first foray into the Phoenix market, SSRE has since grown its asset base in the market to 9 buildings and counting.
Bread and Butter Value-Add Play
Purchased in 2019 for $72M, the Landing checked all the boxes of a hallmark SSRE value-add acquisition candidate: great infrastructure, excellent location, below-market rents, and tremendous upside potential. The asset was outdated and lacked modern unit finishes, common area amenities, and a clean outward appearance, which were all needed to compete in the local trade area and command premium rent pricing. Since completing the acquisition, SSRE has invested over $4M into the property, spending a majority to renovate the leasing office, pool area, and 95% of the units. The rest was used to upgrade landscaping, exterior painting, and signage. An average of $11K has been spent on each unit for renovations that include paint, flooring, light fixtures, stainless steel appliances, quartz countertops, faucets, one-tub sink, reglaze, and horizontal window treatments and tile backsplashes. The unit renovations have translated into an average monthly rent premium of $300 per renovated unit – a 33% ROI. As a result of the operational improvements and strategic Capex investment, NOI is up about 20% since acquisition with room still to grow, and the asset was recently appraised by a lender at over nine figures!
Driving Value through Best-in-Class Operations
When SSRE acquired Saticoy Apartments in 2007, it was a run-down asset with tired units, unhappy tenants, neglected landscaping, and an apathetic outsourced property manager known for its maniacal focus on operations. SSRE immediately assumed control of overall day-to-day operations through its internal property management company and has implemented key changes such as improving daily maintenance, switching key vendors, renovating units, and upgrading the building’s communal areas. As part of its hands-on approach to operations, our management team is known for its frequent property walks and attention to detail, ensuring that the building’s appearance is pristine and not a single blade of grass is out of place. The operational improvements have paid off, with NOI more than tripling since 2007!
Using Financing to Drive Investor ROI
The closing of Sunset Views in 2021 marked the first time SSRE utilized a bridge loan from a debt fund for financing. In such a low cap rate environment, acquisition financing is often constrained by debt service coverage ratio (DSCR) covenants limiting any meaningful loan to value (LTV), thereby requiring a significant equity contribution, and reducing ROI. Not content to settle for low LTV financing or expensive preferred equity, SSRE turned to interest-only bridge financing, which allowed for a high LTV at a low-interest rate due to the DSCR being underwritten using an interest-only without principal paydown. The low 20% equity down payment has enabled SSRE to enjoy outsized returns on equity which has only been amplified by the asset’s growth in NOI and appreciating value. SSRE estimates that Sunset Views will generate a YOY ROI of over 100%!