Trails at Northpointe

Trails at Northpointe
Jackson, MS

Address: 600 Northpointe Parkway
Jackson, MS. 39211

Year Built: 1980

Number of Units: 144

Unit Mix:

• 56 1BD/1BA Units
• 6 2BD/1BA Units
• 72 2BD/2BA Units

Site Layout:

The property consists of nine two-story residential buildings. One building contains the leasing office, clubroom, laundry room and racquetball court. One building houses an additional laundry room.

Structure:

• Exterior: Brick and wood siding
• Windows: Aluminum-framed, single glazed, single-hung windows
• Electrical: Separately metered units with copper wiring
• Foundation: Reinforced concrete slab on grade, with integral perimeter and
• intermediate foundation walls bearing directly on the soil
• Roofs: Pitched roofs with asphalt comp shingles. **All new roofs to be paid by seller
• Parking Lot: Concrete

The 144-unit Trails at Northpointe Apartments is located in Northeast Jackson, Mississippi, which is the most desirable sub-market in the Jackson MSA. Jackson is the largest city and capital of Mississippi, and when combined with the Belvedere Apartments and Briarwood Apartments (SJS II), the Trails at Northpointe brings the total to three properties with a total of 360 apartment units in this hot sub-market. (See Briarwood Apartments (SJS II) for more demographic and other information about the Jackson MSA.)

The barriers that any competition faces entering this market are challenging. The Jackson MSA has approximately 20,000 apartment units. Less than 3% of this total supply, or only 600 units, have been constructed since 2005. Outside of small, in infill developments downtown, all of the municipalities have effective moratoriums on new multifamily development. As a result, virtually no multifamily has been delivered in the Northwest submarket in over 13 years. The negative sentiment towards new multifamily development by the local municipalities provides an excellent opportunity for well- located assets with sound operating fundamentals.

The Trails at Northpointe was another off-market deal brought to the fund by one of its current property management partners who is very active in the area. There were multiple offer stages with intense competition during the acquisition process, but the deal was awarded to the fund due to its proven ability to close and already strong presence in the area. The property was successfully purchased substantially below the cost of replacement in August 2017 for $6.45 Million.

The lender from Berkadia Financial feels acquiring this property at approximately  $44,000 per door is a bargain when all the other similar properties in the area are going for the mid-$50,000’s per door. In addition, following due diligence, management went really hard at the seller to pay for certain deferred maintenance items that were in need of repair, resulting in a credit of $415,000. The credit will pay for all new roofs, new windows, new parking lot seals and re-striping, and all observed interior problems at the expense of the seller. All of this will bring the property up to the level of what it should be for the area. The lender’s opinion after hearing about the credit is that upon completion of the work, this property should be worth in the mid $50k’s per door, adding $1.5 – $1.75 million in value to the asset. This increased value could lead to an early refinance opportunity.

The Trails at Northpointe immediately meets our criteria for return. At current rents, the acquisition cap rate is 7.9. The property was mismanaged prior to acquisition, resulting in realized rents being well below current market rates.  Upon takeover, management forecasts a 3% bump in rents by year two at the very least, and possibly 5%. At current rents, the cash on cash return in year one with the interest only program is projected at 18.4%. Although principal payments begin in year two, it’s anticipated the increased payments will be offset by the increased rental rates. As a result, the year two cash on cash ROI is projected to remain strong at 16.6%, and overall the 10-year IRR is projected to be 30.9%.