The Enclave Apartments Memphis, Tennessee

The Enclave Apartments
Memphis, Tennessee

Address: 2940 Hickory Hill Road
Memphis, TN 38115

Year Built: 1985

Number of Units: 208

Unit Mix:

• 48 1BD/1BA
• 152 2BD/2BA
• 8 3BD/2BA

Property Size: 26  1 and 2 Story Buildings

Structure:

• Exterior: Brick and Wood Siding
• Windows: Aluminum-framed, single hung with insulated glass and screens
• Electrical: Copper wiring
• Roofs: Pitched, wood truss support system with plywood decking and   asphalt shingles
• Parking Lot: Sealed blacktop

The 208 Unit Enclave Apartments is part of a two-property portfolio acquired in Memphis, Tennessee. Located within 500 miles of two-thirds of the nation’s population, Memphis’   economy has benefited from several years of rapid growth and increasing diversification. 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, Memphis is  positioned as America’s distribution center. Primary industries include distribution & logistics, manufacturing, agribusiness and healthcare. 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.

Memphis is being led by larger companies such as FedEx, AutoZone and International Paper, all of which have headquarters in the city. FedEx’s campus occupies over 89 acres and provides 1.1 million square feet of office space. FedEx is the city’s largest employer with more than 30,000 employees.The Enclave is strategically located between both the FedEx World Headquarters and the FedEx distribution hub at the Memphis International Airport only 5 miles away. Investment in Memphis’ retail sector has also been a bright spot, with much anticipated national retailers like Nordstrom Rack, Ulta, Trader Joes, H&M and Ikea opening new Memphis area locations, reflecting growing confidence in the region.

In addition, The Enclave is located five minutes from the Poplar/I-240 Office Corridor, the largest Class “A” office corridor in Memphis. This area is home to seven million square feet of office space, including corporate offices for Marsh, Kroger, and Regions Bank, and the world headquarters for International Paper (Fortune 127) and ServiceMaster. The Enclave also enjoys close proximity to an abundance of big box retailers. Super Target, Wal-Mart, Home Depot, Lowe’s, Sam’s Club, Best Buy, Golfsmith and others all have space located just east of the property. Due to its close proximity to a large percentage of blue and white-collar jobs in the Memphis MSA, the Enclave is perfectly positioned to benefit from the high and growing demand for workforce housing in the area.

The Enclave is a continued value-add opportunity. The prior owner implemented a successful interior upgrade program that provides significant revenue upside. Under that program, nine units were renovated at an average cost of $2,000 per unit. Those units were then leased, and resulting in an average rental increase of $73. The Enclave has also successfully leased nine units with just an appliance upgrade. Those units typically receive a $40-$50 rental premium. Externally, The Enclave is in excellent condition, only needing $5,000 in total work prior to taking over, mostly for signage.

The fund was one of 4 to 5 finalists that competed for this two-property portfolio.  Although not the highest bidder, the fund was successfully awarded the purchase contracts due to its established track record of professionally and efficiently closing on so many prior properties. The Enclave Apartments was acquired for $9.7 Million on September 30, 2016, and management anticipated being able to get 4.1% or less on financing for the property.

Occupancy was at 90% when acquired, and should be able to be increased to 93-94% with good management. In year one, the gross cash on cash return on investment is projected at 19.4% at current occupancy levels. However after management improvements take place and occupancy is increased to the projected 93-94% level, the numbers should increase to 24.4% beginning in year two.