Value-add can have a multitude of meanings depending on who you ask. For us, we strive to create value by increasing the operational income of an asset.
By Alex Brackman, Assistant Vice President, Asset Management, MLG Capital
Building a real estate portfolio has many nuances. Ultimately, you are looking for the best opportunities available. One of the cornerstone investment strategies of MLG Capital is called the “value-add strategy”. In other words, we try to turn coal into diamonds for our investors; hopefully, with a lot less pressure and time needed.
Value-add can have a multitude of meanings depending on who you ask. For us, we strive to create value by increasing the operational income of an asset. That can generally include correcting inefficiencies in property management, increasing the occupancy of the asset, or growing rents via improvements to property interiors or exteriors.
The transformation of Sienna Springs Apartments is a great story in which we were able to create value. The property, 395 units in total, is located in one of our favorite growth markets: Phoenix, AZ. Phoenix is a market that outperforms the national average for market rent growth. According to RealPage, market rents in north central Phoenix are forecasted to grow 4% annually from 2021 through 2024 with occupancy forecasted to remain stable at 95%. It’s also a great market to escape to during the cold Wisconsin winters.
On top of the strong growth market, the opportunity to purchase Sienna Springs Apartments checked all the boxes for our value-add strategy:
- The property presented an opportunity to correct deferred maintenance via an exterior rebrand; this included landscaping and common area upgrades to garner a larger tenant base
- The asset was built in 1970’s and the unit interiors were largely un-renovated from the original finishes
- The ability to partner with a sponsor with a history of successful value-add deals and extensive presence in the market
After three years into ownership, a name change, full rebrand and an investment of nearly $9 million dollars into property improvements, we could not be prouder of the transformation into Camelback Flats.
Operationally, the property is largely performing in line with our original underwriting. The net operating income increased by double digits year-over-year in 2020, despite a pandemic.
Property improvements include: a completely renovated clubhouse, an expanded leasing office, and brand-new fitness facility. The exterior pool areas were transformed from run–of–the–mill pools with boring pool furniture into outdoor entertainment areas with grills, yard games, and much-needed landscaping upgrades.
The visual presentation of the asset completely changed. From tired beige outside, deferred maintenance and lackluster landscaping; now, the property has a more contemporary look with a blue and grey color scheme, stained-wood walkway railings, and lush landscaping. Ground floor units received expanded patio areas, adding a private outdoor living space that our tenants desire.
Camelback Flats is a textbook case for MLG Capital’s value-add strategy: having a strong joint venture partner, fixing prior mismanagement, located in a growth market, and increasing rent through unit renovations and market rent growth.
Stay tuned for updates as we further quantify the value created – but certainly not before a few more wintertime escapes for the asset management team.
Our team is ready to walk you through MLG’s longstanding history investing in private real estate and our unique solutions for both novice and experienced real estate investors alike. Learn more.
Alex Brackman is an Assistant Vice President, with a focus on managing the MLG Capital portfolio. Outside of work, Alex pretends to golf and can smoke a mean rack of ribs.