Source Capital is excited to announce the acquisition of South Mountain Square Apartments, a 117-unit garden style apartment community.
About the Location
The South Mountain Square neighborhood is in the South of Phoenix, the 2nd fastest growing city in the country. Phoenix is home to 5 million people, and Maricopa County is the #1 growth county for several years running.
The South Mountain neighborhood is located to the North of the South Mountain Range, which frames Phoenix proper on the Southside. Immediately to the East is a very popular and employment-rich city of Tempe.
The community sits on Baseline Road, which is the second most traveled road in Phoenix with 100,000 vehicles traveling each day. On two sides of South Mountain Square are gated residential communities with late-year construction homes in the $250,000 – $600,000 range.
In the past few years, there has been a tremendous push to re-develop what the City calls The Baseline Corridor, and it’s showing. All along Baseline Road between I-10 and the site there is Class A retail, including everything from Walmart and Target to LA Fitness and Chic-fil-A.
South Mountain Square is very definitely in the path of progress.
About the Asset
This 117-unit apartment community was built in 1986. It is two stories. The unit mix consists of 1×1 and 2×2 units. The 1×1’s are about 600 sq.ft. and the 2×2’s are almost 900 sq.ft. Each unit has a balcony and a storage unit. The kitchens are good size with plenty of cabinets, and there are large closets. Since the building is next to the South Mountain, there is very nice view out of some of the units.
Upon our renovation, the community features will include an updated playground, gym, bark park, BBQ area off of the pool, and an updated pool area.
Purchase Price & Renovation Budget
We paid $10,750,000, which is $91,880 per door.
The renovation budget is $1.5M.
Blended, this represents $140 per sq.ft.
Equity & Debt
$4.5M in equity was raised from partners.
The debt was facilitated by Burkadia. This is a bridge loan; 3+1+1 interest only at LIBOR+312.
Value-Add
We estimate approximately $300 per unit of value-add in this project. The LTL is approximately $175, and another $125 bump due to the renovation.
Current occupancy is at 100%.
The renovation will include:
- Solid surface countertops
- Underhung sinks in kitchens and baths
- Stainless steel appliance package
- New flooring
- New paint
- New fixtures
- Upgraded playground
- Dog park
- New gym
- Upgrades to office and laundry facility
Below are some images of the Canyon 35 renovation scope, which is a property we own in Phoenix. The scope of remodel will be very similar at SMS.
Target Hold Period
Our preferred exit is 3-5 years. However, we always underwrite a 10-year hold to allow our investors a clear perspective on what would happen if the economy forced us to remain in the deal for a longer period of time.
Target Returns
5-Year IRR target: 17%+
10-year IRR target: 14%+
5-year Equity Multiple target: 2.0
10-year Equity Multiple target: 2.6
5-year Annualized COC target: 19%
10-year Annualized COC target: 16%
Do You Have Questions?
Please email: [email protected]
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Talk soon!