Cedarwood Apartments

Address: 2880 Beverly Hills Rd.
Memphis, TN. 38128

Year Built: 1973

Number of Units: 80

Unit Mix:

80 2BD/1.5BA Units

Structure:

Exterior: Brick, wood frame, vinyl siding
Electrical: Separate metered units with copper wiring
Foundation: Concrete Slab
Roofs: Pitched with asphalt comp shingles
Parking Lot: Concrete

Cedarwood Apartments was brought to the fund by one of its key property management partners. It was being sold as part of a two-property portfolio, which included the Sunridge Townhomes. Cedarwood meets 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.

Combined, the funds already own 520 apartment units within the Memphis market. Cedarwood is located within only a couple of miles of the 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. With all these units falling under the current management umbrella, it creates greater efficiencies of scale and should help to reduce costs. In fact, Sunridge can be operated out of the main leasing office at Cedarwood, providing additional scale and efficiency with payroll.

Cedarwood is a turnkey asset with continued net operating income growth opportunities through light interior cosmetic upgrades. However poor management resulted in occupancy being well below the average for the market. Bartlett Crossing, Gardenwood and Greenview all average around 95% occupancy. So although management assumes year-one occupancy of 85%, the combination of moderate renovations and professional management should provide huge upside after the asset is stabilized following take over. With 2016 rent growth of nearly 6% in this submarket, and 2017 anticipated to be 4.5%, additional growth should be realized from continued rent growth.

Combined, Sunridge and Cedarwood meet our criteria for return. With an acquisition cap rate of 8.1% based on trailing 12-month financials, year-one cash on cash is projected at 19.2% with interest-only financing. With a second year of interest only financing and efficient management, year-two cash on cash should grow to 28.3%, with a 10-year IRR of 35.1%

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