We recently purchased a 224-unit apartment complex in Springfield, Missouri called Sherwood Village Apartments. This 2003/2006 vintage sits on almost 5 acres of land and is expected to generate a 14% net IRR for our LPs.
The acquisition was made via Blue Field Capital where I’m a General Partner. One of our specialties is looking for undervalued but promising multifamily properties in key growth areas of the country.
Why Springfield, Missouri?
Springfield is an example of this; a young and vibrant city that is home to a burgeoning healthcare and recreational equipment sector. It is the third largest city in Missouri and the second fastest growing city in the state. It is cradled near the Ozarks and is also the birthplace of the historical Route 66 that holds a special place in America’s heart.
Cost of living in Springfield is well below the national average, and several orders of magnitude below major cities like Los Angeles and Boston. The Wall Street Journal ranked Springfield, Missouri number one as an ideal location to work from remotely. It has a low unemployment of around 2.5%, below the national average of 3.6%.
More importantly, Springfield is located near the Ozark mountains, and residents can easily enjoy their beauty, as well as access to museums, fine dining, festivals, entertainment, sports, parks and trails, kayaking and watersports, but also have access to a vibrant corporate space and dynamic nightlife. Definitely a great place to raise a family.
Because of universities in the area like Missouri State University, much of the population is young and productive. The average age of Springfield residents is around 32, which is among the youngest in the country. Springfield’s population grew by almost ten percent between 2011 to 2021.
We at Blue Field Capital really like the fact that occupancies have tightened in the Southwest, in this case the Springfield submarket, where the property is located. Additionally, there are no projects currently under construction in that area.
Forbes in 2019 selected Springfield MO as one of the best cities for business and careers (see https://www.forbes.com/places/mo/springfield/?sh=3cf838a7e511). Median home price was around $152,000. The cost of living was 9% below the national average, with a low 2.8% unemployment and job growth of around 1.7% annually.
We feel that areas like Springfield in the Midwest have not seen an oversupply of residential real estate construction. Healthy growth is expected in the next few years due to a migration from the large coastal cities. This is due to many factors including cheaper cost of living, lower crime rates, the preponderance of work from anywhere jobs, better family quality of life, and others.
Although internal US migration patterns are complex, the US Census reported in March 2023 that migration outflows from large US urban centers, such as the Northeast, continues two years after the pandemic. Smaller cities like Springfield are growth beneficiaries of this trend.[1]
The Property
Sherwood Apartments is adjacent to the Kansas Expressway and has quick access to downtown Springfield and many major employers there like Cox Healthcare, Bass Pro Shops, Mercy Hospital, O’Reilly Auto Parts, and others.
We acquired the property at a significant discount as compared to a new multi-family property development of similar scale. With the right amount of improvements, we expect to see years of productive life for Sherwood, especially with the growing population of working age people in the city.
We have engaged the services of CRES Management, a professional property management team with extensive experience in the area, to run day to day operations. They manage thousands of units in Kansas City and surrounding areas, including in Springfield.
We plan to spend less than ten percent of our acquisition cost to fix up the apartment complex, including both exterior and interior refurbishments. The previous owners managed the property for around twenty years, but leaned more towards maximizing rental income instead of asset optimization.
Sherwood Apartments comes with many attractive amenities including a clubhouse, an indoor basketball court, a fitness center, and a swimming pool as part of its facilities. Our planned additions include adding a washer/dryer to each unit, as well as other improvements.
We believe we can return around an average 7.2% cash-on-cash and a 14% seven year IRR for investors.
Economic growth in smaller cities like Springfield, Missouri will continue unabated into the future as families seek a better quality of life with less crime at a lower cost outside of the major cities. With well maintained multifamily residential properties in these growth areas, we believe cash flow will continue to grow over the next few years and ensure good returns for investors.