Colony West Apartments, Little Rock, Arkansas

Colony West Apartments
Little Rock, Arkansas

Address: 1420 Breckenridge Dr.
Little Rock, AR 72227

Year Built: 1972

Number of Units: 126

Unit Mix:

• 28 2BD/1.5BA
• 16 2BD/1.5BA Townhomes
• 36 2BD/2BA
• 20 3BD/2BA
• 14 3BD/2BA Townhomes

The 126 unit Colony West Apartments is located in Little Rock, Arkansas, a solid secondary metro area. According to HUD’s State of the Market Report from January 2016, this is a balanced economic region that benefits heavily from the stability of the education, health care and government sectors located there. These are significant drivers of employment in the region that partially insulate it from contractions in the national economy. Presently, demand exceeds supply in this area, and according to the HUD report, supply of new housing is not projected to keep pace with demand for the forecast period through September 2018, which should support continued low vacancy rates and higher rental rates well into the future.

Colony West Apartments was owned by a fund that was restricted from holding their assets for more than five years, and as a result, had to sell. The property was privately offered off market to those in the know. Management found the property to be in excellent condition. In fact, after Fannie Mae sent in their 3^rd inspection group, the only necessary repairs they found was $10k of miscellaneous ground work. After being selected as the winning buyer group, the property was acquired for $6.3M on April 27, 2016.

Original projections when underwriting the property showed initial cash on cash returns of 14.8% per annum, increasing to 17.6% after year one when rents were raised to market. However, since the underwriting and investment committee approval, several favorable events occurred that should provide even better returns. First, occupancy increased from 95% to 100%, and demand remains strong. Second, rents increased more than anticipated, so management began receiving rents that weren’t projected until after the first 12 months. Lastly, a dip in interest rates occurred when the loan was locked in, resulting in a 4.5% fixed rate for the life of the property instead of the 4.67% used in the projections. As a result of these events, revised projections indicate cash on cash returns should start out closer to 16% on this property, and are projected to get up to 19.2% after year one. As of the end of Q2 2016, the property was 98% leased with only 2 vacant units.