Crown Ridge Apartments Fort Smith

Crown Ridge Apartments
Fort Smith, Arkansas

Address: 7114 Texas Road
Fort Smith, AR. 72908

Year Built: 1996

Number of Units: 60

Unit Mix: 60 1BD/1 BA

Fort Smith is the second largest city in Arkansas. It is also home to the headquarters for the fund’s largest property management partner, so we could not get better management scrutiny for this property.

The unemployment rate in Fort Smith is 3.8%, with job growth of 2.14%. Future job growth over the next ten years is projected to be over 40%. Fort Smith is becoming a new crossroads of America with the new I-49 that connects New Orleans to Canada from south to north, and the I-40 running east west, from coast to coast. Statistics show MSA population has a floor in cities that have major interstates running through them. The Fort Smith MSA has a population of over 280,000 and growing.

The Arkansas College of Osteopathic Medicine is a brand new state of the art medical school located in Forth Smith that opened in July 2017. In addition, the president and CEO of the Arkansas Colleges of Health Education announced plans in June for a second college, a $15 million, 60,000-square-feet College of Health Sciences expected to be ready for classes in 2020. The Arkansas College of Health Sciences will be directly behind the Arkansas College of Osteopathic Medicine.

Fort Smith has a diverse economy that includes companies like ArcBest which is headquartered there. ArcBest is the parent company of flagship less-than-truckload (LTL) carrier ABF Freight and the emerging businesses ABF Logistics’, Panther Premium Logistics, FleetNet America and ArcBest Technologies. ArcBest employees over 13,000 total workers. Mars PetCare’s manufacturing facility, one of the world’s leading pet care providers featuring pet food brands such as Pedigree, Royal Canin, and Cesar, was named one of the World’s Best Multinational Workplaces by Great Place to Work in Fortune Magazine for the sixth consecutive year. Other large employers include Trane Commercial HVAC’s manufacturing plant in addition to Umarex And Walther Arms’ manufacturing and distribution plant.

Both Crown Ridge properties were off-market deals that the fund was able to secure because of its growing reputation. The back story is a local family owned and managed group that traditionally focused on low-income housing tax credit properties amassed around 18,000 units under management at one point. During the 2000’s, the then president (second generation) tried to switch gears to the development business, but due to the financial crisis, fell on hard times and gutted the rental side of the business to keep the construction side going. Today they are onto their third generation president, and he is proving to be an unsuccessful manager. They now own 2000 units, mainly 40-80 unit buildings that they are looking to spin off. This is when we enter the story.

By stepping in and offering to pick up the two Crown Ridge properties, our property management partner was able to obtain a right of first refusal for the owner’s other assets. This provides a competitive advantage that will help secure deal flow moving forward. They have 35 other assets, all in the $2-$8 million category – a perfect sweet spot for the fund.

Both deals have initial and immediate value add just by bringing in our professional management partners who have a strong presence in the region. They have an intimate knowledge of both locations and know the properties have been underperforming based on local comps. Management believes rents are conservatively $35-$50 under market. Another perk of the deals is the properties are newer construction, built between 1996 and 1998. As a result, management does not foresee any extensive upfront capital expenditures, and both properties were acquired in January 2018.

Crown Ridge – Fort Smith also meets our criteria for return. The two deals were packaged together and the same financing program was obtained for both properties. An aggressive local banking debt package was successfully put together with 18 months of interest only financing. Going in at current rents, the cash on cash return is projected at 17.9% in year one with the interest only financing. Following takeover, our property management partners should continue to improve on operations, and the cash on cash return is estimated to be at 15.1% in year two even with the interest only period ending. The property has a 10-year overall IRR of 27.9%.