Comment of the Day: Why There’ll Be No 1301 Richmond Redo at That Selling Price

COMMENT OF THE DAY: WHY THERE’LL BE NO 1301 RICHMOND REDO AT THAT SELLING PRICE “At 2.9 acres of physical land, and a purchase price of X (let’s assume priced to the dirt, likely $50/foot) they are in this deal for $6MM dollars day one. If they wanted to be in the business of renovating (This IS income producing property, not pride of ownership single family housing) and retaining the character of the original complex, look at the math . . . assuming a coverage ratio of 1/1, and average unit @ 1000 square feet, that gives you 120 units and 120,000 to renovate meticulously. Assuming you would have to put $20,000 into each unit to justify buying this deal, you’ve now got $6MM + $2.4MM in renovation dollars, plus the fact you’ve got to kick everybody out of their unit to renovate it, do the work, then relet the unit. So, that puts you at 1 year of ZERO revenue, and whatever associated costs there are there. For the sake of argument, your all-in is $10MM. THEN, after you have painfully restored a garden complex to the delight of yourself (I promise you the neighborhood won’t come out and bring you a check for your efforts to retain transient renters for another 50 years), here is your reality: 1) you would need to jump rents from $800/month to $1200 or greater, lease them all, then sell at a benchmark cap rate exit for such a non-conforming product, and that’s assuming you get your investors interested in the capital and scope in the first place, rather than buiding a 2.5:1 ratio development against $50 dirt 2) you would need to find an exit partner with just as much interest in running this model as you did creating it. institutional buyers that are willing to overlook the latest TCC Alexan product to buy a risky retrofitted low coverage ratio multi family deal in a market that has very little inventory of trailblazing like product. what i’m saying is this won’t exist, so you’re stuck with cash flow now. So . . . you have $10MM in it, and if you are the greatest level of execution here, you are 7 years of revenue before you are whole on your initial investment, and you have a huge chunk of change parked in it, with zero recap abilities. if i run a bank, i’m not cashing you out of that mistake.” [HTX Rez, commenting on Report: Castle Court Midrise Planned for Andover Richmond Apartments Site]

13 Comment

  • I respectfully disagree with your numbers. I’ve ran them on this propry using the same proforma estimates I’ve done 100 times on others just like it I’ve brought in Montrose.
    I’ll share them in a bit.

  • Oh. And I dont disagree that the new owner won’t be blowing it up. I’m sure that’ll happen.


  • (disregard. Most was already addressed on the other story thread)

  • I may not be able to come up with the exact numbers, but I have to agree with the original post. The property is far to valuable to only get a “return” on a few units at $800 a month. The same property can house 4 times the amount of units at double the rent. The only way “joe six pack” will be able to afford inner-loop ten years from now is if we can get “rent controlled” laws passed……(that is the laughing joke part)

  • I love ‘free markets’ don’t you? Capitalism will solve all our problems, unless you have no freaking capital. Then you’ll be lucky to have a pot to piss in. Go Texas!

  • Greg L H, over half of the inner loop remains undeveloped and with 10000 or so new apartments being developed if they aren’t all filled, rents will go down. And Cody is still out there redeveloping multi-families for lower rates. I think the Hand wringing is unjustfied. There will be plenty of places available in the future to rent in the loop, just maybe not this location for that price.

  • Glen: capital is created by labor. Anyone is free to create as much as their skills allow. That created capital can be leveraged to buy homes or grow business.
    The people buying investment properties or starting business didn’t hit the lottery or have a bag of “capital” fall on their head. They worked hard and worked smart (some were born into money, that’s not the majority). So what’s your beef?

  • Cody, you’re my favorite slumlord. (I mean that in the nicest meaning of the word).

    Glen sounds like he’s part of the OWS crowd who have no clue where money comes from or how even the basic economy works.

  • So Cody, you have any comparable apartments available (1 or 2 br) for this soon to be apartment-less Andover resident? I need to move fast as imagine they’ll be a run at the scarce, cheap apartments in this area.

  • Dom: we have a few 1bds coming up early next month. Contact me outside of the site and I’ll set you up with our property manager who can help. He’s literally been calling people who’s leases are 30, 60, even 90 days out to see who might be leaving as people keep asking for units and our 1bds are jammed full (and people in 2bds are bunkering down so those are hopeless).
    The only thing we have consistently are studios but that’s due mostly as they tend to have higher turnover. The buildings stay full but it seems something is always coming up soon. I’d rather not advertise locations/prices on the site but it shouldn’t be hard to find us :)

  • Cody is my favorite slum lord too. Ofcourse, I am sure it depends which side of the bench you are on.

  • I’m just wondering if “my favorite slumlord” should be taken as a complement. If it comes up in the Swamplot awards as a category I think I’d vote for someone else. :)