Latest / Go Big with Gib Podcast / Ep 59: Northaven Park Apartments Investment

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Ep 59: Northaven Park Apartments Investment · Go Big with Gib Podcast

• 0:00
  Speaker 1: Welcome to the Go Big With Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins.
• 0:06
  Speaker 1: Hey guys, and welcome to this episode of Go Big With Gibb.
• 0:17
  Speaker 1: Today I want to talk to you about my second passive investment, which was called North Haven Park Apartments.
• 0:23
  Speaker 1: I made my second passive investment as a limited partner in a real estate syndication in December of 2022.
• 0:31
  Speaker 1: The deal was called North Haven Park and it was a 344-unit property built in 1975, and it was a Class C apartment complex in Northwest Dallas.
• 0:43
  Speaker 1: This offering was a 506B offering, so it was open to both accredited and sophisticated investors.
• 0:51
  Speaker 1: On December 10th of 2022, I was out in Dallas, texas, and I had an opportunity to tour the property with the lead sponsor and the majority of the GP team, and so we did a walking tour of the property, and the property is almost 50 years old, so it was pretty worn down.
• 1:09
  Speaker 1: It needed a lot of CapEx renovations.
• 1:13
  Speaker 1: I mean, my first impression of the property was, hey, if we can make money off of this property, great, but this is definitely not something that I feel a tremendous sense of pride of ownership.
• 1:22
  Speaker 1: But I knew several members of the GP team and a lot of them were physicians and dentists, and what they were calling this deal was a TIC, and it stands for Tenants in Common.
• 1:34
  Speaker 1: Essentially, a lot of real estate syndications involve just retail investors coming in and driving all the equity raise and this particular investment the lead sponsor and the rest of the GP team.
• 1:46
  Speaker 1: Each one of those individuals had contributed over $1 million, and so they were just raising a small amount of equity from limited partners like myself, and most of the equity raise came from the sponsorship team, which is a very unique situation.
• 2:01
  Speaker 1: So I decided to invest in the property.
• 2:03
  Speaker 1: I personally invested $100K and I placed my investment on December 13th of 2022.
• 2:09
  Speaker 1: We closed on the property on December 21st, just in time for Christmas.
• 2:14
  Speaker 1: Based on my $100,000 investment, I currently own about half of 1% of the total deal.
• 2:22
  Speaker 1: Let's talk a little bit about the capital stack.
• 2:24
  Speaker 1: So the capital stack for this deal was the purchase price was $35 million.
• 2:30
  Speaker 1: The total equity raise was $17 million.
• 2:32
  Speaker 1: Again, a lot of that money came from the GP team that was making these seven-figure investments, and then a small amount from retail investors like myself.
• 2:42
  Speaker 1: We secured $20 million in debt from retail investors like myself.
• 2:46
  Speaker 1: We secured $20 million in debt.
• 2:47
  Speaker 1: So the total capitalization was $37 million.
• 2:49
  Speaker 1: So let's talk a little bit about the debt structure.
• 2:51
  Speaker 1: We secured an agency loan through Freddie Mac and it was a 10-year fixed loan at an interest rate of 5.6%.
• 3:00
  Speaker 1: This was a low leverage deal.
• 3:01
  Speaker 1: We were financing 57% loan to value.
• 3:04
  Speaker 1: So just to talk a little bit about the projected returns of this opportunity, the original plan was to purchase the property, do a lot of CapEx renovations and then refinance the property in 18 to 36 months.
• 3:19
  Speaker 1: We're filming right now, in January of 2025, and we've owned the property for over two years more than 24 months and we have not yet refinanced.
• 3:30
  Speaker 1: So the original plan was to refinance the property in 18 to 36 months.
• 3:35
  Speaker 1: The average annual return that we were projecting was 17 to 18 percent.
• 3:40
  Speaker 1: The average annual cash flow was six to 7%, paid in quarterly distributions.
• 3:46
  Speaker 1: The sponsorship team said that they were projecting a 2x equity multiple and that it would be between a three and a five-year hold.
• 3:54
  Speaker 1: So, with this opportunity being a tenants in common type deal structure, the waterfall distribution was pretty unique.
• 4:00
  Speaker 1: What the sponsors did was they did a 91-9 split where a 91% was going to the limited partners and 9% was going to the GP team.
• 4:11
  Speaker 1: So that was just a very small carry for the GP team, considering all the work that they were doing, and that was one of the things that really attracted to me and that was one of the things that really attracted me to the deal was that 91-9 split.
• 4:23
  Speaker 1: Most real estate syndications are either an 80-20 split or a 70-30 split, and sometimes that change is based on certain hurdles.
• 4:32
  Speaker 1: So now I want to talk a little bit about the challenges that we face with this property.
• 4:36
  Speaker 1: Remember this property was 47 years old when we closed in 2022.
• 4:41
  Speaker 1: We closed on December 21st and less than 10 days later, on December 31st, there was a reported gas leak.
• 4:48
  Speaker 1: The service provider performed several tests and, for safety reasons, we had to shut off the gas to the building.
• 4:54
  Speaker 1: The city inspector came out and told us that we needed to update all of the gas fixtures on the property to bring everything to code.
• 5:02
  Speaker 1: From December 31st to January 6th, we had to turn the gas off during that initial period off during that initial period.
• 5:13
  Speaker 1: Now, on January 6th, the boiler room passed inspection.
• 5:14
  Speaker 1: We were able to turn the gas back on, at least to provide the tenants with heat and hot water.
• 5:18
  Speaker 1: Many of the tenants had gas stoves and could not use them for cooking for several weeks.
• 5:23
  Speaker 1: This episode of Go Big with Gibb is brought to you by Irons Equity.
• 5:26
  Speaker 1: At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family.
• 5:40
  Speaker 1: If you want to secure your financial future, go to investwithgibcom to schedule a 30-minute introductory meeting with me, gib Irons Again, that's investwithgibcom.
• 5:50
  Speaker 1: Meeting with me, gib Irons Again, that's investwithgibcom.
• 5:54
  Speaker 1: That was our first challenge.
• 5:56
  Speaker 1: The second challenge was on March, the 2nd of 2023, there was a really bad wind and rainstorm in Dallas, texas, and building 19 had significant damage to the roof and extensive damage to 36 units.
• 6:11
  Speaker 1: Now this property is 344 units total, and so 36 units is approximately 10% of the total units, and those tenants had to go find somewhere else to stay.
• 6:23
  Speaker 1: We were able to put them in temporary housing while we did renovations, but we actually lost 36 units in that storm and had a pretty massive insurance claim.
• 6:32
  Speaker 1: To the credit of the asset management team, they promptly filed the insurance claim, they did all the right things and we ultimately recovered about $1.4 million in insurance proceeds, which allowed us to replace a lot of the roofs in the buildings, replace the 36 units that had damage with totally rebuilt units, and it also gave us some money for loss of rents during the affected period.
• 6:57
  Speaker 1: The third challenge that we faced within the first five-month period was increased property taxes.
• 7:04
  Speaker 1: So when we acquired the property, the tax value was $20.6 million.
• 7:08
  Speaker 1: Okay, 2023 was a reappraisal year and after the reappraisal, the property appraised at $40 million.
• 7:16
  Speaker 1: This is a 93.7% increase.
• 7:21
  Speaker 1: In response, the asset management company hired a tax consultant to protest the new appraised value and they won, and we were able to get the appraised value reduced from $40 million down to $27 million.
• 7:36
  Speaker 1: Remember, it was $20.6 the prior year.
• 7:39
  Speaker 1: So we did experience a property tax increase, but it was not nearly as significant as it would have been had we not protested.
• 7:46
  Speaker 1: As far as depreciation goes, the offering memorandum was projecting 65% to 75% bonus depreciation.
• 7:54
  Speaker 1: Now let's talk a little bit about the results.
• 7:57
  Speaker 1: So, as I stated earlier, we're about 24 months in to owning this property.
• 8:02
  Speaker 1: Now let's talk a little bit about the results.
• 8:04
  Speaker 1: So we acquired this property more than two years ago.
• 8:07
  Speaker 1: As far as the bonus depreciation goes, we were able to capture 58% depreciation.
• 8:12
  Speaker 1: So, again, the projection was 65% to 75%.
• 8:16
  Speaker 1: We ended up at 58%.
• 8:19
  Speaker 1: So next I want to highlight some of the performance metrics at the end of 2024.
• 8:24
  Speaker 1: So at the end of 2024, we had experienced a 25% increase in total income.
• 8:30
  Speaker 1: Our net operating income was up 37% from the time of the takeover and our rent growth over that period of time has been 27%.
• 8:40
  Speaker 1: So we've had really good numbers, despite all the challenges.
• 8:44
  Speaker 1: Our occupancy at the close of 2024 was 93%.
• 8:48
  Speaker 1: So really objectively, we've done very well, despite all the challenges.
• 8:52
  Speaker 1: As far as the CapEx goes, we have now renovated 15 out of the 27 total buildings by giving them new roofs.
• 9:00
  Speaker 1: So now I want to brag on the asset management team in terms of the CapEx renovations that we've done thus far.
• 9:07
  Speaker 1: We have put new roofs on 15 out of the 27 buildings.
• 9:11
  Speaker 1: We've converted the leasing office to a rentable unit, which now provides increased rent of $1,780 per month, which brings our total unit count to $345.
• 9:24
  Speaker 1: We've added washer dryers to the laundry room, which is another added source of revenue.
• 9:31
  Speaker 1: We added a rentable clubhouse as an amenity for the residents.
• 9:34
  Speaker 1: We added a rentable clubhouse as an amenity for the residents.
• 9:35
  Speaker 1: We added a rentable clubhouse as an amenity for the residents.
• 9:40
  Speaker 1: We've introduced a cable package and we've made a lot of updates mechanically and to the electronic system.
• 9:46
  Speaker 1: For example, we replaced the boiler and chiller unit, which is a very massive renovation.
• 9:51
  Speaker 1: So, even with all of this going on, the property has paid quarterly cashflow distributions and the average cash on cash so far is 6.4%.
• 10:02
  Speaker 1: In total, I have received $9,400 in cashflow distributions that have been paid quarterly.
• 10:09
  Speaker 1: So I guess the biggest takeaway from this property is that when you buy an older building that's 47 years old, you know that you're going to have a lot of issues with the property, a lot of deferred maintenance, and I really want to tip my hat to the GP team, the asset management team, that has navigated all of these challenges.
• 10:29
  Speaker 1: I mean, I can't tell you how concerning it was to find out about the gas leak 10 days into owning the property and to find out that the tenants were without heat and hot water, you know, in the beginning of January.
• 10:44
  Speaker 1: But that was addressed very quickly.
• 10:46
  Speaker 1: It was communicated to the investors and I actually felt better about the investment after that.
• 10:53
  Speaker 1: The storm damage in March of 2023 was pretty catastrophic.
• 10:56
  Speaker 1: I mean honestly, losing 10% of your units is a very bad situation.
• 11:01
  Speaker 1: The insurance claim was handled very promptly and I was very satisfied with the result of that, collecting over $1.4 million in insurance proceeds.
• 11:11
  Speaker 1: Protesting the increased property tax was just a great move on behalf of the sponsor and so far, I'm really excited about this deal.
• 11:20
  Speaker 1: I think it's going to perform very well and I hope that me sharing this experience with you is helpful.
• 11:26
  Speaker 1: Thank you for joining us today and have a great day.
• 11:29
  Speaker 1: Thank you for listening to this episode of go big with gibb.
• 11:36
  Speaker 1: If you haven't already, go follow us on social media at gibb irons.
• 11:40
  Speaker 1: We'll see you next time.