ASSET CLASS: Class A Multifamily OFFERING SIZE: $23,825,000 MINIMUM INVESTMENT: $100,000 LEVERAGE: 56.96% UNITS: 315 YEAR BUILT: 2018 HOLD PERIOD: 7-10 Years CURRENT OCCUPANCY: 96.49% (9/26/19) TARGETED YR.-1 RETURN: 4.80%
The Project consists of eight, three-story residential buildings, a leasing/clubhouse building, and 66 parking garages, all located at 2909 Sundance Parkway, New Braunfels, Comal County, Texas. Constructed in 2018, the Project is in generally “good” condition pursuant to the PCR (defined below). The Project site includes 14.591 acres of land improved with a total of 280,984 square feet (“SF”) of net rentable area with an average unit size of 898 SF, and a development density of 21.45 units per acre. Parking is provided by 589 total parking spaces including surface stalls, carports and garages. According to the PPM, as of September 26, 2019 the Project was 96.49% leased.
Maximize revenue and occupancy over the holding period. Distribute monthly cash flow. Sell in approximately 7-10 years, or when the market dictates.
The Project is located in the San Antonio – New Braunfels, Texas metropolitan statistical area (the “San Antonio MSA”). The San Antonio MSA is located in South-Central Texas and includes Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina, and Wilson Counties. The San Antonio MSA is the third-largest metro area in Texas after Dallas-Fort Worth-Arlington and Houston-The Woodlands-Sugarland. Austin-Round Rock lies approximately 80 miles to the northeast of the San Antonio MSA via Interstate 35. According to the 2010 Census, the San Antonio MSA had a population of 2,142,508 residents. The San Antonio MSA population is estimated to have grown to 2,518,036 residents as of July 1, 2018, up approximately 2.33% per year over the 2010 census. The rate of population growth within the MSA exceeds the State of Texas growth rate of 1.91% and the national growth rate of 0.83% over the same period.
The unemployment rate within San Antonio MSA was 3.0% as of September 2019. The unemployment rate within the metro was below the State of Texas unemployment rate of 3.4% and below the national unemployment rate of 3.6%, each reported as of September 2019 and October 2019, respectively.
New Braunfels was recently named the second fastest growing city in America, according to the U.S. Census Bureau. New Braunfels’ growth rate rose 7.2% between July 2017 and July 2018. The commute to the San Antonio Business District is approximately 40 minutes and Austin is approximately 45 minutes. New Braunfels is home to several tourist attractions including Schlitterbahn, the nation’s number one water park, and the Guadalupe River, Comal River, Natural Bridge Wildlife Ranch, Natural Bridge Caverns, and Dry Comal Creek Vineyards. PNC Bank is opening an operations center next to the property that will employ more than 550 people. New employers adding to the job base include Amazon, Caterpillar and IBEX Global.
Our market analysis was based on a REIS.com Performance Monitor report for the San Antonio MSA apartment market containing 3rd quarter 2019 information. According to the report, despite a development boom, the multifamily vacancy rate is still fairly moderate. The overall San Antonio vacancy rate is 5.9%, unchanged from the year prior. New development is anticipated to total 3,392 new units (1.9% growth) in 2019, with another 3,532 new units forecast to come online in 2020. New development will slow in 2021 and beyond, however, will remain relatively strong. Despite the level of development, absorption is expected to keep pace. As a result, the vacancy rate within the market is anticipated to remain nearly constant over the five-year horizon. According to the report, the average rental rate within the San Antonio multifamily market is currently $966/unit per month. The average rental rate increased by 3.6% in 2017, and by another 4.3% in 2018. Rental rates are forecast to gain 2.7% in 2019 and gain an average of 2.56% over the next five years.
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 six 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.
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