BEACON LAKE APARTMENTS PROJECT
Highgate Capital Group has offered us the opportunity to partner with them in the off-market acquisition of Beacon Lake Apartments in Mason (East Lansing), Michigan. Highgate Capital Group is under letter of intent to purchase the Property. Due to exclusive off-market negotiations with the seller, Highgate is able to acquire the Property at a steep discount to market. Based on discussions with seasoned brokers with knowledge of the market, if the Property was widely marketed, Beacon Lake would possibly trade for over one million dollars more than the contracted price. .
Beacon Lake was built in 1994 and consists of 48 one bedroom units and 192 two bedroom units within 15 buildings along with a leasing center and clubhouse. There is a total of 234,400 rentable square feet located on 17.7 acres. Amenities include two scenic lakes, an outdoor pool with sundeck, a clubhouse, fitness center, community garden, picnic area and gazebo, and enough carports for every unit. The unit interiors include ceiling fans, large walk-in closets, balcony or patios, full-size washer/dryers (the only property in the immediate submarket with in-unit machines), vaulted ceilings on the second floor and fully-equipped kitchens with built-in microwaves.
The Property has a limited amount of deferred maintenance and will benefit tremendously from significant capital investment. Highgate’s budget is conservatively estimated per unit for aesthetic improvements to the curb appeal, amenity package, landscaping and asphalt repair. Furthermore, all the unit interiors are original and have not been updated in over 20 years. Therefore, over half the budget will be used for interior upgrades, including new cabinet doors, resurfaced countertops, brushed nickel lighting, new appliances, two tone paint, and vinyl wood flooring, which on average should achieve a $100 monthly premium.
Beacon Lake has a history of strong performance, and is currently 100% occupied, with a long waitlist. According to Axiometrics, a leading national multifamily research firm, effective rent growth in the submarket over the past four quarters has averaged 3.5% with a vacancy rate of 4.1%. Along with the steady growth and high occupancy in the submarket, Highgate’s planned improvements to the curb appeal, amenities, and unit interiors should attract an upmarket resident base with higher household incomes that will boost the ability to increase rents. Furthermore, due to the current owner’s lack of multifamily operating experience and a shoestring marketing budget with no corporate outreach, the in-place rents are significantly below the competitive set. The opportunity exists to gradually bring the effective rents up to average market levels within the first two years of the investment hold period.
For new management of the property, Highgate will continue their long-standing partnership with Michigan-based Village Green Management, one of the nation’s largest privately held third party fee managers of multifamily housing with more than 40,000 units in 21 markets. With Village Green’s deep local market knowledge and experience, the partnership will employ best-in-class management practices to implement a capital improvement program and strategic marketing campaign that will drive revenue growth and significantly improve net operating income.