It has been a hectic year already here at CalTier. We have been working on improving our technology to make it easier for our investors to get involved in real estate and grow the assets in the fund.
As of the time of writing, the CalTier Fund has invested in over 1,000 multi-family units. This is a huge achievement, and we are very proud of the progress we have made for our investors.
Below is a summary update on each asset:
Solano Vista – Glendale, Arizona
We invested in Solano Vista at the beginning of 2021 with our real estate partner, Sundance Bay. In the last year, our partner has worked hard to improve the community’s amenities, including a new fitness center, resident lounge, office, and game room, and upgraded 161 of the 352 units to Class A finish level. Renovations included vinyl faux wood flooring, hard surface countertops, new cabinetry in the kitchens and bathrooms, brushed nickel hardware, stainless steel appliances, subway tile backsplashes, under-mount sinks, modern lighting fixtures, and washer/dryers. These upgraded units generate, on average, a monthly premium of $154 over classic units.
Last quarter, Solano had an average economic occupancy of 89%, which now tracks the budgeted occupancy rate. Average rental rates increased by 2%, and net revenue grew by 14% quarter over quarter, hunting 6.3% higher than budget. Rental rate increases positively impacted revenue on renewals and units coming out of a renovation and a significant decrease in vacancy. Operating expenses are currently tracking 23% below budget due to achieved payroll efficiencies. In total, Net Operating Income is tracking 25% above budget.
Because of the state of the market in the Phoenix area, last quarter, Sundance Bay decided to run a full-scale marketing process for the sale of Solano Vista. To ensure an efficient and successful transaction, the property management team stopped bringing in new units for renovation and focused on maintaining consistent property financials.
After receiving strong interest in Solano Vista from a diverse group of buyers, our partner selected a highly experienced Phoenix operator to purchase the property. The sale is expected to go through next month, and early conservative projections are showing net investor returns of 70% IRR and a 3.0x investor equity multiple.
Glenwood – Provo, Utah
CalTier invested in Glenwood in March with our partner Redstone Residential. Since then, Glenwood has been off to a great start. Shortly after closing this past spring, our partner set up a massive renovation project, including unit and amenity renovations. Unit renovations include installing new LVT flooring, countertops, cabinets, paint, carpet, and furniture.
The response by residents and prospective residents to the renovations has been positive. Brigham Young University welcomed students back to campus for Fall 2021, and as a result, the property was able to distribute an annualized 4.7% return on equity invested.
Lakewood – Houston, Texas
The CalTier Fund invested in Lakewood in March 2021. Since its acquisition, Lakewood has been performing well above Pro Forma projections.
The business plan has been to chip away at inefficiencies from the onset. Before the acquisition, Lakewood sat at the lowest level of the overall comp set for rental rates and affordability. This presented a unique opportunity to drive rent increases through strategic renovations and active asset management.
Additionally, being an ‘All Bills Paid’ Property, reigning in utility spending is paramount to achieving high Cash on cash returns. As such, this continues to be a primary focus by transitioning to LED lighting, low-flow toilets, and aerators.
Based on market conditions, a few brokers provided an informal BOV (broker opinion of value) to gauge the pricing of Lakewood. Both BOVs came back valuing Lakewood at around $90K/unit.
BOV $90/unit = $7,920,000
Purchase $72/unit = $6,350,000
Profit $18/unit = $1,570,000
However, based on a stabilized NOI of $36,640 trending for 12 months, the value could shake closer to $8,400,000 or $95/unit.
Currently, Lakewood is trending around $75,000 for the next four months with the following expected bump occurring Dec-Feb when Lakewood will have a significant loss to lease burnoff, allowing Lakewood to trend around $78,000-80,000 Net Rental Income, further increasing NOI and exit value.
Currently, 100% occupancy
Aggressively pushing rents and renewals
Cash on Cash should trend above 9% for Q3-Q4
Expenses are beginning to decelerate, and property is stabilizing
Raintree – Provo, Utah
The CalTier Fund invested in Raintree in May 2021. As soon as Raintree closed, the construction management team jumped straight into gutting units for renovations. About 60 workers were on site pushing hard to finish interior renovations over the summer before the fall semester. We are happy to state that renovations are complete, and the execution of the business plan is well underway.
Apple Lane – Lawrence, Kansas
In July, the CalTier Fund invested in a 75-unit student housing complex serving the students of the University of Kansas in Lawrence, Kansas, with our partner Redstone Residential. This acquisition is an aggregation and economies of scale play because it sits right next to Orchard Corners, a student housing complex owned by Redstone that has performed exceptionally well. The property, like others, was found off-market after initiating discussions with the owner.
The floor plans are complementary to Orchard Corners, which is why Redstone has combined operations and increased the offering to students from a single leasing office, including a rebrand to Orchard Corners Suites, which provided a no net increase to staff, ultimately boosting returns by sharing the team over the two properties.
Before the acquisition, the property rents were well under market relative to the comps. The team is currently marking to market the rents, adding additional market fees, and beginning to renovate the units fully. The previous owner had not raised the rent in 8 years.
Apple Lane has been nearly 100% occupied for the past five years, leading the market in affordability. Through unit renovations and an exterior refresh, Apple Lane is expected to achieve rent premiums to bring the property more in line with market rents.
The CapEx items will include new flooring, paint, cabinets, countertops, and appliances. We believe that the assumptions are conservative for where the rents can go.