Virginia Beach, VA Multifamily, DST

Virginia Beach, Virginia

ASSET CLASS:  Class A Light Value-Add Multifamily
OFFERING SIZE:  $24,045,000
MINIMUM INVESTMENT:  $100,000
LEVERAGE:  56.78%
# OF UNITS:  229
YEAR BUILT:  2006
OCCUPANCY:  95%
HOLD PERIOD:  7-10 Years
TARGETED YR.-1 RETURN:  5.4%

The Project consists of four, four- story apartment buildings containing approximately 273,613 rentable square feet, a clubhouse with a leasing office and fitness center, and seven garage buildings on approximately 23.34 acres of land. The Project was originally constructed in 2006 and is also located near the top four private employers in Virginia Beach, namely, Bon Secours Health System, the Port of Virginia, Ceres Terminals, and General Dynamics NASSCO.

The Property is well positioned to capitalize on increased rent above standard growth through light value- add execution. This will include select updates to appliances, countertops and lighting, to keep the Property current with the latest trends and renter preferences. The Sponsor has budgeted $14,500 per unit through upfront reserves and cash flow to upgrade 40 select units that are still in original or near-original condition, thus ensuring cash is available to execute on this strategy as opportunities arise through unit turns. As units are renovated, the additional rental premium will drive increased residual proceeds at sale based on a capitalization rate-based exit. We have also budgeted for upgrades the property's landscaping and exterior lighting, as well as to make updates to the dog park, pool area and fitness center.

From a market perspective, the Property presents a tremendous opportunity as a new owner to benefit from “mark-to-market” rent increases. Average rent per unit is well below those being achieved at nearby communities in the competitive set, creating an excellent opportunity as an investor to substantially increase the NOI by increasing the Property’s rental rates to market.

Virginia Beach Coast

Home to a flourishing local culinary scene, rich history, a variety of arts and entertainment and family-friendly attractions that keep the locals and visitors entertained year-round. The city is one of the most popular tourist destinations on the East Coast.

Largest Naval Base in the World

The Hampton Roads region, which consists of Norfolk, Virginia Beach, Chesapeake, Portsmouth, Newport News, Hampton and Suffolk, is home to the largest Naval base in the world and the only NATO command on U.S. soil. The total Department of Defense population in the region, including active duty and civilian personnel, is approximately 150,000 out of a total population of approximately 1.6 million. Major military units and headquarters include NATO’s Allied Command Transformation, U.S. Joint Forces Command, U.S. Fleet Forces Command, U.S. Air Force’s Air Combat Command, U.S. Marine Corps Forces Command and the U.S. Army Training and Doctrine Command. The military currently has 64 ships homeported in the area and 36 aircraft squadrons. They also have a variety of Navy Special Forces and support units.

The Port of Virginia

The Port of Virginia, approximately 20 minutes from the property, is estimated to generate $17.5 billion in annual income and $1.4 billion in state and local taxes. The Port of Virginia, which is described as the “most modern, efficient and most productive in the Western Hemisphere,” recently completed a $320 million expansion. The port handled a record 3 million TEUs of cargo in 2019, up from 2.85 million TEUs in 2018.

Virginia

Virginia has an unemployment rate of 3%. The state boasts a booming economy with Amazon planning to bring 25,000 jobs to the state at HQ2 by 2030, and CoStar planning to bring 100 jobs to its Richmond-based office. Virginia is home to three of the top colleges providing students the highest average salaries for their tuition dollars - The University of Virginia, The College of William & Mary and Washington & Lee University.

Apartment Market

According to the report, conditions within the Norfolk/Hampton Roads market are extremely strong. Note that limited new supply, combined with strong demand, have created very tight conditions. The current vacancy rate is 4.2%, down 40 basis points over the past quarter and down 60 basis points over the year- end 2018 vacancy rate. Going forward REIS has projected these strong conditions will prevail. Between 2019 and 2023 new additions will average just 743 units per year representing inventory growth of less than 1.0% per year. The vacancy rate is forecast to fall to near 4.0% and remain near that level over the extended forecast horizon.

Rental rates are still showing steady signs of growth. In 2018, the average rental rate increased by 3.6%, and is forecast to increase by another 2.4% in 2019. The average rental rate is now $1,082 per unit per month and will reach a forecasted $1,098/unit by year-end. REIS has forecast slower gains between 2.0% and 2.5% per year over the next five years, which would seem conservative, in our opinion, given the extremely strong occupancy.

The Project is furthermore located within the Lynnhaven/Oceana submarket. Conditions within the submarket are similar to the overall market with a current vacancy rate of 3.6%. No new completions are forecast in the next several years allowing the vacancy rate to fall to 2.4% by 2023. The submarket average rental rate is $1,162/unit per month, up 2.7% over the past year. After gaining 4.1% in 2017 and 3.0% in 2018, rental rate growth will slow in 2019 and beyond. When broken down by unit type, one-bedroom rental rates are $1,047/unit per month ($1.38/SF/month), two-bedroom rental rates are $1,166/unit per month ($1.12/SF/month) and three-bedroom rental rates are $1,409/unit per month ($1.09/SF/month).

Investment Market

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.

Prior Syndications: 61
Real Estate Assets: 86
Total Transaction Volume: $1.5 Billion
Market Share: 6%
Founded: 2012
Full Cycle Multifamily Offerings: 6
Hold Period (Years): 4.05
Average Return of Equity: 162.58%
Average Distribution: 6.58%
Average Return on Equity: 162.58%

Management Company: BH Management
Management Fee (% of Gross): 2.85%
Properties Managed: 272
Units Managed: 83,000
Units Managed in State of VA: 3,500
Date Founded: 1993
Headquarters: Des Moines, IA
Website

Targeted Yr.-1 Cash-on-Cash: 5.40%
Targeted Cash Range: 5.00% - 6.50%
Targeted Cash Average: 5.62%

All-In Price: $55,635,000
Purchase Price: $48,600,000
Appraised Value: $49,000,000
Loan Amount: $31,590,000
Equity Raise:. $24,045,000
Trust Reserves: $2,246,588
Reserves to All-In Price: 4.04%
On-Going Reserves: $1,020,195
Total Reserves to All-In Price: 5.87%
Net Load: $4,388,412 (Gross Load - Trust Reserves)
Net load to Equity: 19.91%
Net Load to All-In Ratio: 8.61%
Appraised Net Load: $4,388,412
Appraised Net Load to Equity: 18.25%
Appraised Net Load to All-In Price: 7.89%
All-In $/Ft.: $203.33
All-In $/Unit: $242,948
Sponsor Profit: 5.36%

Net Operating Income: $2,577,105
Purchase Cap Rate: 5.30%
All-In Cap Rate: 4.63%
Breakeven Exit Cap: 6.47%
Breakeven Exit Cap Rate Spread: 117 bps
Appraised Cap: 5.26%
Appraised Cap Rate Spread: 121 bps

Loan Amount: $31,590,000
Term: 10 Years Fixed
Interest Only Period: 5 Years
Amortization Period: 30 Years
Interest Rate: 3.49%
Prepayment: 1% of loan balance
Lender: Walker & Dunlop, LLC
LTV: 56.78%
Non-Recourse: Yes to Investor

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The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by the issuing company, or any affiliate, or partner there of the issuer. All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to the “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. Past performance and statements regarding current occupancy and earnings are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by the issuer, or one of its partner/issuers. The issuer does not warrant the accuracy or completeness of the information contained herein. Some offerings are subject to a “cooling off” period and are not available to all investors. 
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Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC, and the issuer are not affiliated.