I did not mention in the article that came out yesterday, but this next acquisition will be a 94-unit community in Mesa, AZ. Which, for a lack of a better way to put it, is about to blow the hell up!
Sun Crest Is Special
Historically, our basic approach to value-add investing has been to buy in transitional submarkets, where no one has tried to offer a higher level of product, and to offer exactly that – a higher level of product. The thinking is that there are people in these submarkets, who are connected to the area and want to stay there, but who make enough money and are willing to spend a few hundred dollars more to live in a much nicer apartment home than what is typically available in the location.
Sun Crest fits the model exquisitely. However, over the next 12-18 months there is something special happening in Downtown Mesa, which opens the door to exceptional possibilities beyond a traditional value-add.
As we indicated in the OM, this location is within a qualified opportunity zone, which will encourage much new development. And in this case, the development will be transformational for the downtown Mesa.
Take a look at some of the projects that are coming to Downtown Mesa, all within walking distance of Sun Crest:
Habit Metro, the developer credited for turning around downtown Phoenix nearly a decade ago, has their eye on downtown Mesa.
“Mesa’s next,” said Tim Sprague, Habitat Metro principal. “The ingredients are there: Light rail, education, the arts,”…”You’re a hop, skip and a jump away from any place in the Valley.”
Habit Metro plans to build a 15-story hotel and apartment complex across the street from the Mesa Arts Center. The property would consist of a multistory parking garage topped by at least 75 apartments and 75 hotel rooms. It would be the tallest building in downtown Mesa.
The developers already own land next to the parking garage where they plan to build a 7,000-square-foot food hall, which would accommodate three or four trendy dining options. On top, they would build a 5,000-square-foot events center.
The GRID is a $59 million project coming to Downtown Mesa, which will feature:
- 14,000 square feet of co-work and office spaces.
- First floor retail and dining spaces feature glass wall and roll-up doors to allow business to open onto the streetscape.
- Nearly 300 apartments, including 450 sq ft “micro units” with built-in furniture
Mormon Temple Redevelopment
Within eyesight of Sun Crest, just across the street, this project has broken ground at Main St and Mesa Dr. This modern mixed-use residential development will consist of:
- 240 market rate apartments (20 studio, 110 one-bedroom, 110 two-bedroom).
- 12 three-bedroom market rate rental townhomes.
- 12,500 square feet of ground floor retail, and
The mixed-use component is projected for completion by late 2020-early 2021.
The Residences on Main
Also going in on Main St., a five-story mixed-used project tentatively to be called “The Residences on Main.”
With construction targeted for completion in early 2021, the project will consist of:
- 198 market-rate apartments
- 20,000 of ground-level retail, restaurant and commercial space, and
- 200 parking spaces.
ASU Mesa Center
ASU at Mesa City Center aims to be a world-class hub for digital innovation.
“If you travel around the world, there are a few significant digital innovation centers that exist — in Sydney, Hong Kong, Singapore, London, New York City. We’re building one for the Western United States here in Mesa.”
The new ASU Mesa location — scheduled to open in fall 2021 — will house the ASU Creative Futures Laboratory, including academic programs offered by the Herberger Institute for Design and the Arts related to digital and sensory technology, experiential design, gaming, media arts, film production, and entrepreneurial development and support.
A typical value-add re-positioning project aims at acquiring a Class C building in a Class B location and then doing whatever improvements are necessary in to upgrade the building to match everything else in the location – from Class C to Class B.
In Mesa, though, this plan is getting a major boost from the economic redevelopment fueled by the opportunity zone classification. The fact is that this location aims at becoming Class A.
Upon completion of all of the above-mentioned projects, Mesa will become one of the most desirable places for a millennial to live in the East Valley. Luxury rentals will line the streets along the new light rail.
So, how does this position Sun Crest?
Simply put, average grade new construction in Phoenix rents for $1,500. The projects in Mesa are bulled as “luxury”, which is more than likely to command rents in the range of $1,500 – $2,200.
In light of this, Sun Crest post-renovation becomes the budget alternative for anyone who wants to live in this area, but can’t afford the $1,500-$2,200 per month in rent. Our proposed post-renovation rents for Sun Crest of $1,200 on a blended and weighted basis, will definitely stand out as a bargain in this location.
We typically spend around $20,000 per unit on the renovation of a property. At Sun Crest, we are budgeting over $30,000. Why? Because while we can never be seen as new construction, we can be highly competitive provided we can offer 80% of the benefits of new construction but at a steep discount to new construction to the tenants.
As such, we are spending the extra dollars on a state of the art pool area and gym. We are spending money to install a washer and dryer in every unit. We are cognizant that people will not be happy with “good enough” in this location. We must deliver a truly compelling product, which captures 80% of the feel and functionality of new construction but at a discount. And this is why we are spending the extra dollars on Sun Crest.
In the end, this community will be known as the cool place to be, in one of the coolest parts of Phoenix, that you can enjoy on a budget!
What an exciting project!
We are going to make a lot of money for ourselves and our partners!!!