Greenview Estates

Greenview Estates
Memphis, TN.

Address: 4750 Hedges Drive
Memphis, TN. 38128

Year Built: 2001

Number of Units: 158

Unit Mix:

• 32 2BD/1BA Units
• 88 2BD/2BA Units
• 38 3BD/2BA Units

Structure:

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

Common Area Amenities: Swimming Pool, Clubhouse, Picnic Area, and Playground

The Greenview Estates and Gardenwood 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 market, management was able to cherry pick the two best properties while passing on the others that weren’t as strong.

Greenview and Gardenwood 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.

Greenview and Gardenwood 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. Greenview had all it’s roofs damaged by a hailstorm just prior to acquisition, and as a result, will be getting 100% new roofs courtesy of the seller’s insurance.

With the acquisitions of Greenview and Gardenwood, management controls 462 units in one of the hottest submarkets in Memphis, in addition to another 208-unit property in another area of 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.

In addition, Greenview has major upside when management discontinues the Low Income Housing Tax Credit Program. This is a newer property built in 2001 – and it was built with LIHTC credits that required the owner to keep 40% of the property rented to people at 60% of average net income or lower for the area. After 15 years, that program can now be discontinued, and management intends to do that. Bartlett Crossing, also located in that sub-market, has average rents of $.87 per sq. ft. Greenview is currently at $.62. While the numbers at Greenview, even in this controlled environment, are excellent (and were used for projections), there is a substantial upside in rents, cash on cash return, property value, and IRR if management can get rents even halfway to what they are per square foot at Bartlett.

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

Greenview meets our criteria for return. At current rents, the going in cap rate at acquisition was 8.8, and the cash on cash return in year one is projected at 12.8%. In the second year, cash on cash returns are projected at a healthy 17.2%, providing investors with a 10-year IRR of 28.1%. As mentioned above, once the LIHTC program is retired, these numbers could jump substantially.