Victorian Village Townhomes, St Louis, Missouri

Victorian Village Townhomes
St Louis, Missouri

Address: 11969 Continental Drive
St. Louis, MO. 63138

Year Built: 1984

Number of Units: 210 Units

Unit Mix:

• 187 2BD/1.5BA
• 23 3BD/1.5BA

Structure:

• Exterior: Wood framed with Vinyl siding
• Roof: Pitched with asphalt shingles
• Parking Lot: Sealed blacktop

The 210 unit Victorian Village Townhomes is located in St. Louis, Missouri, a solid secondary Metro area. The St. Lois MSA encompasses nearly 8,500 square miles spread among 15 counties in both Missouri and Illinois. It’s the most populated MSA in Missouri, the second largest in Illinois, and the 19^th largest Metro area in the country. A recent report stated that while the traditional urban magnets for college graduates – San Francisco, New York, Boston, Seattle – still attract the largest number of degree holding millennials, the “hottest” cities are elsewhere, including St. Louis that’s seen a 138 percent increase in the percentage of educated 25-to-34-year-olds living in close-in urban neighborhoods between 2000 and 2012. The area has a 4.6% unemployment rate with job growth projected as 1.4% by the end of 2016. The property is located 15 minutes from Boeing’s military aircraft division’s campus that employs 15,000 people, and is conveniently located near major interstate routes that lead to downtown St. Louis.

A physical inspection of the property found it to be in excellent condition. For a property of this size, there was astonishingly zero deferred maintenance that needed to be done. The only work identified was $5K to $7k of landscaping .

Victorian Village Townhomes may offer the greatest upside potential of any property in the portfolio. It is the only asset that is a value add/turnaround property. While the property was in excellent physical condition, prior management that owned 12,000 units in other areas neglected collections at Victorian Village. Although the property was 94% occupied, there were a number of poorly paying tenants, and as a result, the property was operating at an 80% economic occupancy level for the previous six to twelve months. A new manager started in December 2015 and made significant strides, improving collections and increasing the economic occupancy level closer to 85% within three months. And although It continued to trend better, the progress needs to be continued.

The key to unlocking all of the potential in this property will be Trinity Multifamily taking over management and turning around the collection performance. Trinity considers it extremely doable, especially because the property’s excellent condition makes it a very desirable destination for tenants. Trinity has experience with these turnarounds. They took over a 190 unit complex in Little Rock in 2015. The property was a bit run down and had a 70% economic occupancy level. By June ’16, after doing some light rehab and proper management, it’s operating at 98%. Trinity has taken over similar properties in Springdale, Arkansas and Oklahoma City, and had similar successful results. After inspecting 100% of the leases, Trinity believes it will be able to make significant improvements within the first three to six months.

A number of buyers competed for this deal, and although not the highest bidder, the fund was selected among four finalist buyer groups, and the property was acquired for $11.3 Million in July 2016.

At current occupancy levels, the cash on cash return on investment is projected at 16.9%. With a continued rise in occupancy to 90%, the projected cash on cash return on investment increases to 24.6%. If management is successful in increasing occupancy to 90% (or higher), its anticipated the property will be refinanced in year two, pulling out and returning approximately 30% of invested capital. The reduced capital investment in the property is projected to increase the cash on cash return to over 40%.