Analysis of Investments
Sonata Apartments
RK Properties
RK Properties Sonata Apartments is an investment into a multifamily apartment complex located in North Las Vegas, Nevada. The property was built in 2008 and has a total of 312 units.
Investment Highlights
- Yr. 1 Cash-on-Cash 4.80%
- Initial Occupancy 95.00%
- Est. Time Horizon None YEARS
- Current Cash Flow
- Yr. 1 Cap Rate to Investor 4.51%
- Investor Purchase Price $42,050,000
- Total Offering Size $22,800,000
Loan Information
The total loan is for $19,250,000 and is from First Foundation Bank. The term is for a total of 30 years with the first 5 years being interest only. During this IO term the interest rate is fixed at 3.71%. When amortization begins it is on a 30 year schedule. The interest rate during amortization is 2.35% plus 6-month LIBOR with a floor of 3.71% and a ceiling of 9.5%.
- Yr. 1 DSCR 2.54
- Loan-to-Offering 45.78%
- Hold Period DSCR 1.99
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. A security deposit must be provided by the tenants and subleasing is not allowed.
Key Positives
The loan term is for a total of 30 years, which offers the trust more flexibility to execute a sale for profit. The normal term on a DST loan is 10 years. Comparatively this loan allows for a sale when the trust feels they can maximize value.
Key Risks to Consider
NOI growth compounded over the hold period is 5.21% which is considered aggressive.
The cap rate to investors is low (4.5%).
The upfront costs to investors is high (14.76%) which may limit the ability to recoup these costs at the time of sale.
The interest rate has a variable loan which may make the debt more expensive should the rate increase.
The reserves are being placed into two different accounts which makes it confusing as to how these reserves will be used.
Operating Expenses are projected to decrease over 20% compared to the trailing 12 months of operation at the property.