This sale has delivered an impressive 35.3% IRR and 2.55x NET return to investors over a 40-month hold period.
Both townhome communities were added to our multifamily portfolio through an 8-figure deal in 2020. In a past memo, I went over the reasons that made the acquisition a great opportunity for us, and how we planned to leverage the strengths of the properties to our advantage.
Below are insights into this multifamily investment success story.
The initial investment
A combination of factors made the acquisition an attractive and sensible option in late 2020. For one, both properties were initially positioned as student housing. At the time, this was a depressed market given the COVID-19 restrictions imposed on universities. This meant a generally risk-off sentiment for financing student housing acquisitions, which limited competition against our bid for the properties. To add to this, we were able to secure the properties at an above-market cap rate, with a below-replacement-cost price tag.
Despite the tumultuous real estate outlook in 2020, we anticipated an upswing in the area’s demand for multifamily housing in the foreseeable future. This was at the height of fully remote work, and migration activity trended away from urban cores in favor of less dense and more suburban areas like Columbia.
These factors were strong indicators that the acquisition of the combined 168-unit property portfolio in Columbia, Missouri would be a valuable investment.
Strategic repositioning
We undertook a plan to reposition these properties from student housing to standard multifamily market rate.
Despite being marketed as student housing for the nearby University of Missouri, the 88 units of Cross Creek Villas and 80 units at The Falls of Columbia were already primed for conventional usage. With the communities already built as two to four-bedroom townhomes, there was little friction with shifting to multifamily use.
A systematic and tactical approach is certainly key for a real estate investment to yield solid returns. But even the best investment firms risk unexpected exposure from disadvantageous industry shifts. Fortunately, we had the right mix of on-the-mark strategy and favorable market conditions on our side with this investment.
Our timing proved fortuitous to the multifamily sector boom in 2021, chalked as “a year of records for the US multifamily market.”
Through Q3 2021, national multifamily absorption peaked at a staggering 100K+ units for four consecutive quarters. This influenced a 140X increase in YoY occupancy rates across the country for stabilized properties such as this portfolio.
Overall, the properties saw increased occupancy, capital improvement projects, optimized income, and a strengthened asset value under Blue Field Capital ownership.
Looking ahead
We sold both properties to a private investor group with the help of Northmarq. Following the huge success of this investment, we have decided to pursue a 1031 exchange. As of this writing, we are in active search of an upleg deal for the second phase of the exchange process.
As we continue to navigate new opportunities, I’m happy to celebrate this big win from the outstanding team at Blue Field Capital. We expect 2024 to be an auspicious time to acquire real estate assets, so this deal is undoubtedly the first of many success stories this year.
If you’re interested in learning more about our strategy and focus, you can visit zain-ventures.com/real-estate and the Blue Field Capital website for more details, or reach out to us on LinkedIn.