The Woods of Turpin Apartments

The Woods of Turpin Apartments
Cincinnati, OH.

Address: 6375 Clough Pike
Cincinnati, OH. 45244

Year Built: 1973

Number of Units: 164

Unit Mix:

• 80 1BD/1BA Units
• 81 2BD/1.5BA Units
• 3 2BD/2BA Units

Structure:

• Exterior: Masonry and aluminum with wood framing
• Foundation: Poured concrete
• Roofs: Pitched roofs with asphalt comp shingles.
• Parking Lot: Asphalt

Site Layout:
The property consists of 24 buildings with a separate clubhouse and leasing center.

Common Area Amenities: Controlled Access, Playground, Swimming Pool and Tennis Court

The Woods of Turpin Apartments was brought to the fund off market by another key property management partner after it fell out with another buyer. The fund was a able to get a very favorable price on the property because the seller had to move it immediately.

The property management company was founded and is headquartered in Cincinnati. They hold their own significant portfolio in Cincinnati and are one of the most respected management groups in the market. Cincinnati is their home turf and they know it better than anyone, giving us a competitive advantage. They are also known for their development of properties, so we are leveraging their distinctive competency in this area to help the fund create a lot of value at   this property.

The Woods of Turpin meets our investment criteria for location. Greater Cincinnati boasts a diverse economy and is home to leading companies in the financial, manufacturing, consumer products, healthcare, and retail sectors. The Greater Cincinnati area is home to ten Fortune 500 companies, including The Kroger Co., P&G, Macy’s, Ashland, Omnicare, General Cable, American Financial Group, AK Steel, Fifth Third Bancorp, and Western & Southern Financial Group

Along with stable vacancy rates, rental rates in Greater Cincinnati increased 3.6% on average in the twelve months ending July 2016. This is on the heels of a 5.0% increase year over year from December 2014 to December 2015. The primary factors causing the increase are the positive demand drivers of job growth coupled with limited additions to new supply. The 15- county Greater Cincinnati region added 13,000 jobs in April 2017, according to new figures from the Ohio Department of Job and Family Services. Unemployment improved to 4.2% from 4.7% in February 2017. Leisure and hospitality, trade, construction, transportation and utilities were responsible for much of the local job growth. The manufacturing sector also added 7000 jobs during March 2017. Approximately 900 General Electric employees moved into their newly built 12-story downtown office building in September. The company estimates it could eventually employ more than 2,000 people at its GE Global Operations Center.

Nestled in a safe, single-family neighborhood that is just minutes away from major highways and employers, The Woods of Turpin is located within the Forest Hills Local School District, which is another strong demand driver for the property. Forest Hills is rated as one of the top school districts in all of Ohio. The schools located around The Woods rank in the top 10% of schools nation wide. As has been learned with other properties located in top tier school districts, vacancies are much lower and units will typically rent at a premium compared to similar product in other areas.

This deal has a substantial value-add component. The property was mismanaged and prior ownership had not improved the property to keep pace with local demands. There is no new construction in the area, and current market trends put a premium on updated vintage properties like the Woods. Management has set aside an additional $900,000 of capital over the down payment and closing costs to finance an interior rehab for all 164 units, which will result in a major increase in total property value. Management projects it will be able to raise rents a minimum of $125 for each floor plan after being upgraded. There is also additional upside via implementing a utility pass-back or RUBS program.

The rehab program and improved fundamentals after professional management takes over will create substantial new value. Management plans on capturing that value with a supplemental loan towards the end of year 2 or 3 of ownership, calculated based on current market conditions and our property management partner’s expertise, which should return most or all of the initial capital  investment in the property.

With Cincinnati being a top tier market and the current state of the debt market, we should be able to take advantage of up to 2-4 years of interest only financing that will help to bolster going in returns and provide the cushion needed to upgrade the asset. As a result of these and other reasons, The Woods of Turpin was successfully acquired for $8.47 Million in September 2017.

The Woods at Turpin was purchased substantially below the cost of replacement and meets our criteria for return. Based on current rents, the acquisition cap rate is 7.4. With two years of interest only financing, the cash on cash return in year one would be 13.4%, and following takeover and the completion of the unit rehab program, cash on cash returns are projected to jump to 18.1% in year two. From the value created due to more effective management and having an improved product in an ultra competitive market (with a refinance in year 3 of ownership), the 10-year IRR is projected at 38.7%, making this an exceptional opportunity for us.