Analysis of Investments

Crystal Lakes Florida

ExchangeRight

ExchangeRight Crystal Lakes Florida is an investment in a 224 unit garden style multifamily apartment complex. The apartments are located in Pensacola, Florida. There is Value-Add potential at the property and ExchangeRight intends to upgrade units and amenities at the property.

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.35%
  • Initial Occupancy 97.30%
  • Est. Time Horizon 10 years YEARS
  • Current Cash Flow 6.55%
  • Yr. 1 Cap Rate to Investor 5.89%
  • Investor Purchase Price $23,430,000
  • Total Offering Size $10,895,000

Loan Information

The total loan amount is $12,535,000 from Societe Generale. The term is a total of 10 years with all 10 years being interest only. Interest is fixed at a rate of 4.3%. There is a cash sweep provision from the lender that requires the Debt Service Coverage Ratio to stay above 1.55. The projected Debt Service Coverage Ratio is 2.35 year 1 and 2.71 during the hold period.

  • Yr. 1 DSCR 2.35
  • Loan-to-Offering 53.50%
  • Hold Period DSCR 2.71

Tenant Information & Lease Terms

Leases are signed on an individual basis at multifamily properties. The property manager will negotiate terms on a case by case basis. Leases are generally signed on a 12 month basis; however, this may differ for each tenant.

Key Positives

  • The property is occupied at nearly 100% with 99.5% of the units occupied as of the date of the appraisal. Due to the high occupancy at the property there may be room to increase rents and keep occupancy above stabilized values.

  • Upfront Reserves are nearly $1.5 Million which is set aside for renovations of the units and amenities at the property. The Property Condition Report calls for a total of $562,770 during the hold period which leaves significant reserves for capital improvements.

  • There is Value-Add opportunity at the property for ExcangeRight. They have planned upgrades to half of the property units as well as property amenities. According to ExchangeRight's business plan, these upgrades are anticipated to generate an additional $70 per month in upgraded units.

  • According to the appraisal at the property, the previously renovated units are leased for a premium of about 8-9% higher than non-upgraded units. Due to the Value-Add strategy ExchangeRight may be able to achieve this premium in all units after completing their planned upgrades.

Key Risks to Consider

  • The largest employer in the area is the Department of Defense. With current political uncertainty, should the defense budget be decreased the property may be affected by out-migration of employees of the Department of Defense.

  • Pensacola has been a strong market recently, but during the recession of 2009 there was a large out-migration in the area. If another recession hits the nation or the local area, the property could be affected negatively.

  • There is no guarantee that the anticipated premium on upgraded units will be achieved by ExchangeRight. This would limit the cash flow should they not be attained. However, the previous owner was able to achieve a premium of 8-9% in upgraded units.

Investment Sponsor Information

ExchangeRight

According to the sponsor's website: "ExchangeRight Real Estate, founded in 2012, is a private real estate investment firm focused on the acquisition and management of single-tenant properties throughout the United States. With over $1.2 billion in assets under management diversified across 425 properties in 28 states, we focus on investment-grade, necessity-based retail and Class B/B+ value-added multifamily.

We believe that investors deserve an investment strategy that provides them with stable cash flow, capital preservation, and value-added return potential in the face of uncertain economic and financial conditions. We have implemented a strategy designed to directly address this so that we can preserve our investors' capital and provide attractive income on their capital until the timing is right to execute a strategic exit to maximize their returns."

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