Birmingham, AL Multifamily, DST

Birmingham, Alabama

ASSET CLASS:  Class A Multifamily
OFFERING SIZE:  $39,425,000
LEVERAGE:  48.08%
UNITS:  271
HOLD PERIOD:  7-10 Years

271-unit Class A mid-rise apartment community completed in 2017. The property is comprised of a single 5-story building situated on approximately 4.65 acres, offering a mix of 1, 2 and 3-bedroom units and a single studio unit. Unit amenities include stainless steel appliances, custom shaker-style cabinetry, quartz countertops, subway tile backsplash, plank style wood flooring, built-in desk areas, oversized closet, washer/dryer machines, private patio/balcony area in all units and golf course views in select units. Community amenities include a resort-style swimming pool with in-water tanning deck, clubhouse with viewing screens and meeting areas, fitness center with on-demand video access, gift wrapping room, resident game lounge, rentable office space, 2 outdoor poolside kitchens, bike storage and maintenance shop, dog park and pet spa with grooming stations, controlled access parking garage, air conditioned storage units, dry cleaning service, outdoor re pits with outdoor seating and a latte lounge.

Dog park enhancements including new agility equipment. This will appeal to dog owners and result in additional income opportunities with increased pet deposits and pet rent fees. Enhanced landscaping to improve curb appeal, reduce ongoing landscaping costs and eliminate erosion by adding bull rock. Install faux wood floors in the hallways to provide for a cleaner and more cost-efficient appearance. Expand package locker system adding additional lockers for an added convenience for the residents and will result in additional income opportunities.

The Project is located in Jefferson County, Alabama and within the Birmingham metropolitan statistical area (the “Birmingham MSA”). Located in central Alabama, the Birmingham MSA includes both Jefferson and Shelby counties. According to the 2010 Census, the Birmingham MSA had a population of 1,128,047 residents. The Birmingham MSA population was estimated to have grown to 1,151,801 residents as of July 1, 2018, up approximately .26% per year over the 2010 census. The rate of population growth within the Birmingham MSA was slightly below the State of Birmingham growth rate of .28% below the national growth rate of .73% per year between 2010 and 2018.

The unemployment rate within Birmingham MSA was 2.3% as of September 2019. The unemployment rate within the metro was below the State of Alabama unemployment rate of 3.0%, and the national unemployment rate of 3.5%, last reported as of September 2019.

Internet-based grocery delivery service, Shipt, recently announced its headquarters expansion - adding almost 900 new jobs approximately 2 miles from the Property. Birmingham was recently named “Top 25 Cities for Jobs” by Glassdoor and “Most Affordable U.S. Cities” by Forbes. The Property has a walkability score of 71; it is walkable to two of the area’s top employers – St. Vincent’s Hospital Campus and BBVA – and to a supermarket, park, golf course, local eateries and shops.

From the PPM

The Birmingham-Hoover, AL metropolitan statistical area (the “Birmingham MSA”) currently has a population of approximately 1,154,278 and a diversified economic base with high shares of employment in the financial, trade, government and manufacturing sectors. Moody’s projects that the Birmingham MSA will keep pace with the U.S. in job growth, which is forecasted to be the strongest since 2012 this year. An influx of workers and above-average performance in trade/ transportation, consumer services and education/healthcare will help drive bigger gains.

Birmingham is the state’s center for advanced technology and there are more engineers per capita living in the local area than in any other southeastern city. Birmingham is the location of the headquarters for the engineering and technical services of several power companies, including Alabama Power Company, ENERGEN Corporation and SONAT. The Birmingham MSA is a leading retail and wholesale trade center for Alabama and parts of Florida, Georgia, Tennessee and Mississippi. Birmingham boasts the University of Alabama Medical Center, known for its research on the treatment of cardiovascular disease, diabetes, cancer, AIDS and arthritis. Steel, auto manufacturing and distribution are also major elements of the local economic base. Amazon is in the process of building a new 855,000 square foot fulfillment center in Bessemer, Alabama, approximately 14 miles from Park 35. Anticipated to deliver in early 2020, the $325 million investment is expected create over 1,500 full-time jobs. Other significant distribution facilities also have set up shop in western Jefferson County, including projects for Dollar General and Publix.

The Birmingham MSA also stands to benefit from Shipt’s announcement to expand its headquarters in the Birmingham central business district (the “Birmingham CBD”). Shipt is an internet-based grocery delivery service that was acquired by Target in 2017. The expansion is expected to create over 880

Our market analysis was based on a Performance Monitor report for the Birmingham MSA apartment market containing 2nd quarter 2019 information. According to the report, the sluggish Birmingham growth has not impeded the activity within the multifamily market. The post-recession cycle peaked in 2017 with the delivery of 1,152 new units. Just 216 new units were completed in 2018 and no new units during the first half of 2019, allowing the vacancy rate to continue to fall. As of the second quarter of 2019, the vacancy rate was 5.4%, which is estimated to fall to 4.3% by 2023. Most market participants consider a vacancy rate below 5.0% to signal full “economic” occupancy. According to the report, the average rental rate within the Birmingham multifamily market is currently $940/unit per month. The average rental rate increased by 7.2% in 2017, and by another 4.9% in 2018. Rental rates are forecast to gain 3.0% in 2019 and gain an average of 2.4% over the next five years. When broken down by unit type, one- bedroom rental rates are $702/unit per month ($0.96/SF), two-bedroom rental rates area $830/unit per month ($0.81/SF) and three-bedroom rental rates are $1,033/unit per month ($0.81/SF).

Pursuant to the First Half 2019 CB Richard Ellis Cap Rate Survey, on a national basis cap rates for suburban multifamily fell slightly during the second half of 2018. The average suburban multifamily cap rate was 5.49%, down 6 basis points from the second half 2018 cap rate. Cap rates changes were marginal across all classes; Class C cap rates fell by the greatest margin, down 10 basis points to 6.12%, while Class B cap rates were down two basis points and Class A cap rates were down by six basis points. The cap rate spread between Class A and Class B cap rates is just 38 basis points, the lowest level ever reported by the CBRE Cap Rate Survey.

Investor buying activity also would indicate a preference towards secondary and tertiary markets. Tier I cap rates were up slightly, while Tier II and Tier III cap rates were all down. The cap rate spread between Tier I and Tier II markets fell to 15 basis points, another historic low reported by the CBRE Cap Rate Survey.

According to CBRE, suburban multifamily pricing is anticipated to remain stable in the 2nd half of 2019 by 82% of survey respondents, up sharply over the year-end 2018 responses. Another 14% expect modest cap rate decreases during the second half of 2019.

Targeted Yr.-1 Cash-on-Cash: 4.75%
Targeted Cash Range: 4.40% - 5.49%
Targeted Cash Average: 4.96%

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