Gardenwood Apartments

Gardenwood Apartments
Memphis, TN.

Address: 4787 Garden Grove Cove
Memphis, TN. 38128

Year Built: 1983

Number of Units: 152

Unit Mix:

• 56 1BD/1BA Units
• 72 2BD/2BA Units
• 24 3BD/2BA Units

Structure:

• Exterior: Brick
• Electrical: Separately metered units with copper wiring
• Foundation: Concrete slab
• Roofs: Pitched roofs with asphalt comp shingles.
• Parking Lot: Concrete

Common Area Amenities: Controlled Access, Playground, Swimming Pool and Tennis Court

The Gardenwood and Greenview Estates Apartments were brought to the fund by one of its key property management partners. Both properties were being sold as part of a four property portfolio, but because of the fund’s already strong presence in the Memphis market, management was able to cherry pick the two best properties while passing on the others that weren’t as strong.

Gardenwood and Greenview meet our investment criteria for location – located in a stable Class B submarket with close proximity to major employers and retail corridors. Memphis lies at the geographic crossroads between the Mid-South and the Mid-West, and is within 500 miles of two-thirds of the nation’s population. With two major railroad crossings at the Mississippi, freight running north, south, east, and west, the second busiest inland port in the nation, and the world headquarters for FedEx, this positions Memphis as America’s distribution center.

The city’s central location is key to the local economy’s success and also the foundation for a resilient economy. The ease of distribution also contributes significantly to the manufacturing industry in Memphis. While the rest of the nation has lost manufacturing jobs to foreign markets, the percentage of manufacturing jobs in Memphis has increased to 10% of the population.

The Memphis economy has benefited from several years of rapid growth and increasing diversification. Memphis is being led by larger companies such as FedEx, AutoZone and International Paper, all of which have headquarters in the city, but retail investment has also been a bright spot with much anticipated national retailers like Nordstrom Rack, Ulta, Trader Joes, H&M and Ikea making progress towards opening new Memphis area locations. Investment in Memphis reflects growing confidence in the region.

Memphis is currently undergoing a resurgence thanks to numerous high profile developments that are driving growth and interest in the area. Approximately $1.9 Billion was invested in the city in 2016. Projects such as Nike’s recently announced expansion, the revitalization of the Memphis Pyramid as a Bass Pro Shops “Megastore”, Saint Jude’s planned $9B dollar investment, and AutoZone Park’s $6.5M dollar renovation are all crucial steps that have helped revitalize the Memphis economy.

Gardenwood and Greenview are located within a couple of miles of the fund’s best performing Memphis property, Bartlett Crossing (SJS II). This property’s occupancy rates have consistently been in the high 90’s, which is a good precursor of a stable and well performing  property.

Both properties have undergone extensive capital improvements over the last couple of years. Just under a million dollars has been spent on interior and exterior improvements. The Gardenwood property was mismanaged by the prior owner, and as a result, needed some exterior work, all of which has been budgeted and the numbers look strong. This particular property has so much potential that the CEO of the fund’s property management company said “I’d buy this myself if I had the money!”

With the acquisitions of Gardenwood and Greenview, management controls 462  units in one of the hottest submarkets in Memphis, in addition to another 208-unit property elsewhere in Memphis. This should significantly boost asset value through operational enhancements and economies of scale. Among other things, management will be able to minimize necessary employment and administrative costs while also maximizing marketing efforts  and lead generation.

For all of these and other reasons, Gardenwood Apartments was successfully purchased in August 2017 for $4.56 Million as part of the two-property package with Greenview Estates Apartments. (Greenview was purchased for $5.4 Million).

Gardenwood meets our criteria for return. At current rents, the going in cap rate at acquisition was 9.5, and the cash on cash return in year one is projected at 13.3%. When efficient management kicks in after year one and we reap the benefits of increased occupancy and higher rents, year two cash on cash returns are projected to grow to 22.8%, providing investors with a 10-year IRR of 35.3%.