CalTier Fund 1 Portfolio Update March 2022
2021 and the beginning of 2022 has been incredibly busy and fruitful here at CalTier. The CalTier Fund 1 now has 8 participating investments totaling 1,200 multi-family units in its portfolio and we are working hard to continue to grow this even more. The participating investments span across 5 states in metropolitan areas that we feel have the economic drivers to support continued market growth.
We are extremely proud of what we have been able to accomplish over the past year and a half for our investors. Our goal, when starting the fund, was to give investors the chance to participate in real estate deals that they would likely never be able to access. We open the door to these assets either directly with our team or through working with some of the best-in-class real estate acquisition and management companies.
Typically, many of these deals are only offered to ‘accredited investors’ or those in a private network. We have opened the door to these investments to anyone who wants to participate.
Overall, the CalTier Fund 1 has produced steady cash flow from its investments made to date. The current assets are beginning to stabilize and the fund is now making consistent monthly distributions. As the fund continues to grow, we are expecting this trend to continue.
The following summaries provide more detail of each asset and their respective performance to date.
352 Units, Phoenix, Arizona
As we have previously communicated, Solano Vista sold last year in 2021. Solano Vista was CalTier Fund’s first investment and was able to complete a full life-cycle in 18 months. This is an incredibly short timeframe for an asset of this size but because of the market and the experience and strength of the sponsor and management company we were confident in their abilities.
Often the success of an asset is determined BEFORE you purchase it. Knowing the area intimately and doing a huge amount of due diligence first is what sets apart a good operator from a great one.
At the project level, Solano was able to generate an incredible 72% IRR and 3x equity multiple. This is obviously not typical at all! However, our real estate partner,
Sundance Bay, did a phenomenal job executing on Solano’s business plan, including upgrading 161 of the 352 units to a Class A finish level with vinyl faux wood flooring, hard surface countertops, new cabinetry in both the kitchens and bathrooms, brushed nickel hardware, stainless steel appliances, subway tile backsplashes, under-mount sinks, modern lighting fixtures and washer and dryers.
Before selling, they were able to grow net revenue by 14% quarter over quarter, which was 6.3% higher than budgeted. This was mainly due to the rental rate increases on renewals from units coming out of renovation and significant decrease in vacancy.
Solano Vista received considerably strong interest from a diverse group of buyers and was ultimately sold to a highly experienced local operator at a delta of $25.35M from the original purchase price.
As this was the fund’s very first investment, we made a small fractional investment which provided excellent returns as you can see from above.
88 Units, Houston, Texas
It has been just under a year since the fund invested into Lakewood, an 88-unit garden-style value-add multi-family asset located just outside Houston, Texas.
Our real estate partner and the on-site team have worked extremely hard to execute on the business plan, surpassing the original 4-year projections in just 12 months.
According to Cloud Capital, our partner on the deal, Lakewood has garnered quite a reputation and has achieved one of the highest rent growth and occupancy in the entire Texas City submarket.
Cloud Capital has completed renovations on 48 of the 88 units, updating them with stainless steel appliances, repainted cabinets, sprayed laminate countertops, wood-style flooring, modern lighting and upgraded hardware and plumbing fixtures. These upgraded units are garnering a 16.4% average rent increase per unit.
Overall, rents for workforce housing, like Lakewood, in the job-rich submarket have increased by 44% over the past decade compared to 36% in the Houston metro market and in general, the greater Houston area ranks in the Top 10 in the U.S. for projected migration from 2021-2023.*
To date, based on the monies invested in Lakewood, the CalTier Fund has received 7.68% return back on its investment in less than a year.
Due to the prime real estate market and overachieving performance to date, our real estate partner has begun testing the market to see what Lakewood might generate. They initially received a few offers ranging around $95k/unit (acquired for $72k/unit) but feel that Lakewood will generate a higher price.
Berkadia, a top-tier broker in Houston, is officially launching Lakewood to the market and has already led 3 tours and had 35 potential buyers sign confidentiality agreements to review the financials.
More to come.
194 Units, Provo, Utah
The CalTier Fund invested in Glenwood in March 2021. So far, Glenwood has been performing in line with the business plan and proforma expectations.
The property is currently 96.1% occupied and 2.1% preleased. To date, 61% of the apartment unit renovations have been completed with the remaining renovations to be completed before the Fall 2022 school semester. The outdoor kitchen renovations were also completed and Amazon lockers and new mail parcel lockers were installed.
The Effective Gross Income (EGI) and Net Operating Income (NOI) are performing ahead of schedule, including last quarter in which the actual EGI was 15% above the original pro forma projections and the actual NOI was 22% above the original pro forma projections.
In less than a year, Glenwood has produced a 3.54% return of our initial investment back to the CalTier Fund. With completed renovations and University enrollment projected growth, we are very excited about this asset.
156 Units, Austin, Texas
The CalTier Fund made a participating investment in The Vue in September 2021, and we are already seeing strong leasing metrics.
Upon acquisition, our real estate partner, Lionel Partners, immediately began adding washer and dryer sets to the Classic Units, allowing them to increase rents by $240/month for those units. That’s a 22.5% increase!
They are also in the process of completing 8 new renovated units, 5 of which are already pre-leased at an increase of $488/month. That’s 9.2% higher than the original pro forma projections! The plan is to continue starting renovations on 6 units a month through August.
As a whole, Lionel Partners has already completed updating the exterior paint, re-striping the parking lot and replacing the roofs. The gym renovation is in progress and they have planned renovations for a dog park enhancement, pool resurfacing, and updating the BBQ grills.
Renewals have also seen a strong increase at $140/month, which is 12% over prior rents and occupancy is at 93.9%, which is 2.9% above pro forma projections.
In just a couple of months, we have already had a distribution which consisted of 0.64% return based on CalTier Fund 1’s investment amount.
154 Units, Provo, Utah
CalTier Fund 1 made a participating investment in Raintree in May 2021 with our experienced real estate partner, Redstone Residential.
The property is currently 94.1% occupied with 4.1% pre-leased for the 2022-2023 school year. This is right in line with the market average.
Renovations are continuing to move forward as planned. Currently, a total of 70 apartments have completed renovations with an additional 8 held vacant to finish renovations and the remaining apartments scheduled to cycle through. It is anticipated that all apartments will have finished renovations prior to the start of the 2022-2023 academic year.
Renovation of the common areas are scheduled to be completed before the start of the 2022-2023 academic year as well. Redstone Residential has started renovations of the new clubhouse and office area, which will provide Raintree with a completely different look and feel and change the first impression of the community. The old office will be converted into a fully renovated fitness center, which is a high-demand amenity that the property has sorely lacked.
Raintree is currently renting about 3% above original pro forma projections and has made 2 distributions to date equaling 2.11% return on the invested amount.
We are expecting continued growth as the property improvements increase rental demand.
180 Units, Houston, Texas
The 506 South Apartments, located in Houston, Texas, are our most recent participating investment, which we made in December.
Overall the asset is performing exceedingly well and, in just a couple months, execution of the business plan is already well on its way.
Our real estate partner, Cloud Capital, recently provided the following information:
There is serious demand for clean and affordable apartments in Clear Lake/Webster submarkets next to NASA. In fact, one of the comps to 506 South is now under contract for $126K/unit, which is $27K/unit higher than our purchase price for 506 South. That’s a $4.8M delta!!!!
The Property Manager is already receiving positive feedback since taking over. This has led to the residents having a much more positive experience with upgraded living spaces, quick maintenance response times, and responsive management, among other feedback from the residents.
Many of the Deferred Maintenance/CapEx projects are in process/complete, including the following:
● Refresh of Laundry Rooms 1&2
● Mail Room Refresh
● Landscaping Refresh
● Removal of Tree Stump
● Gutter Cleanout
● Carport Repair
● Tree Trimming
● Staircase Welding and Repair
● Balcony Repairs
● Replacing Support Beams
● Replacing Boilers 1&2
● Replacing Sewer Line in Building 11
● Installing new LED exterior lighting
● Removing all Rotten Fencing
And a few more are in the queue:
● Installation of new security cameras
● Power washing
● Painting the Exterior
● Repairing the Sidewalks
● Remodeling the Leasing Office
● Refreshing the Amenities and Pool
As more develops on this asset, we will continue to keep you updated.
75 Units, Lawrence, Kansas
We made a participating investment in Apple Lane Apartments in July 2021 and it has been performing extremely well.
Apple Lane is 100% occupied with the exception of the 7 units currently being renovated. Our real estate partner, Redstone Residential, is 50% through the renovations and anticipates finishing all 75 units before Fall 2022. Renovations are currently being done 6 apartments at a time.
When finished, residents will enjoy a newly fully-renovated open kitchen and dining area.
Some of the renovations include new LVT flooring, countertops, cabinets, and paint in each apartment as well as painting the exterior of the property to improve curb appeal.
Apple Lane’s pre-leasing is currently 10.6% above the market right now. Since July, Apple Lane has paid out 2 distributions, which have resulted in 2.15% return on the amount invested, which is right on par with the pro forma projections.
Downtown San Diego
The CalTier Fund purchased the Legend Condo in November 2021. The Legend is an ‘A class’ condominium building in the heart of downtown San Diego. The unit purchased has floor to ceiling windows with sweeping views of downtown and the ballpark! The common fire pit area has a direct line of sight view to home plate and this is one of the main reasons so many people purchase these sought-after units.
The short term (30 days or more) and long-term rental market is incredibly strong in downtown San Diego, which is exactly why we purchased this asset.
The Legend has experienced tremendous rent growth with a 33% increase in rent last month. The property has had consistent occupancy since the beginning of the year and with pre-leases up, we have reason to believe that it will stay that way for the rest of the year.
The Legend Condo has already made 3 distributions this year and looking at the recently sold comparable, we believe it has increased in value by 21%.
With the mask mandate being lifted in California and getting into the spring/summer months with more travel, baseball season and events, we strongly believe that we can continue to push rents and occupancy even more.
These are all examples of the types of value-add multi-family investments that the CalTier Fund 1 targets, seeking to add value to assets located in high-density areas with key economic drivers, to continue to build the portfolio.
According to CBRE, the Multi-Family sector outlook continues to be strong and is set for a record-breaking 2022 with 300,000+ expected new units and 8% projected growth in urban effective rents this year*.
Some of the reasons we believe this trend will continue in the Multi-Family space:
People are always going to need a place to live and apartment complexes often offer an affordable solution.
Discretionary spending may decrease in uncertain times, but basic necessities like housing are a priority.
Apartment complexes are financially leveraged.
There is a shortfall of units in the marketplace (CBRE forecast 300,000+!)*.
We are excited about what the future holds as the CalTier Fund 1 continues to grow and we continue to build out the portfolio.
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