Washington D.C. MSA Multifamily, DST

Washington, D.C.

ASSET CLASS:  Class A Multifamily
OFFERING SIZE:  $39,280,105
MINIMUM INVESTMENT:  $100,000
LEVERAGE:  46.87%
YEAR BUILT:  2005
# OF UNITS:  243
CURRENT OCCUPANCY:  96.3%
HOLD PERIOD:  7-10 Years
TARGETED YR.-1 RETURN:  4.58%

243-unit multifamily property located in Wheaton, Maryland, just 14 miles north of greater Washington, D.C. The Property offers a complete in-unit amenity package within the available one-, two- and three- bedroom floor plans that include stainless steel appliances, granite countertops, updated cabinetry and hardwood-style plank flooring.

Residents have access to many community amenities, such as a resort-style swimming pool with expansive sundeck, 24-hour fitness center and community clubhouse. The Property has a Walk Score of 89, meaning it is “very walkable” and most errands can be accomplished on foot.2 Retail, dining and entertaining is all available right outside the Property’s front door, including West eld Wheaton Mall, which is home to Costco, Target, LA Fitness and Macy’s. The Property is down the street from the Wheaton Metrorail station where residents can get to Silver Spring, Maryland in under 10 minutes and downtown Washington, D.C. in under 25 minutes. The Property also offers easy access to major area thoroughfares I-495 and I-270.

The market dynamics are anticipated to be sustainable throughout the hold period, providing the Property Manager the opportunity to maintain or increase occupancy and to increase rental rates at the Property. In conjunction with rental growth, the operational strategy includes monitoring and controlling expenses, and utilizing reserves effectively. To maximize property performance, a state-of-the-art computerized revenue management program will be instituted to analyze market and submarket data and establish optimal unit pricing based on several factors including inventory, days on market, move-in date and location.

The Property Manager intends to introduce, and/or monitor the recovery of other income and fees, such as utility costs, trash removal fees, administrative fees, application fees and pet rent. To retain Residents, the Property Manager intends to implement a lease management system that seeks to limit the number of monthly lease expirations to approximately 10 percent of the apartment units. Programs will also be put in place to enhance the online ratings on apartment rental sites as well as multiple search engines, which are critical in today’s technology-driven market.

Regular meetings will be held between the Asset Manager and Property Manager to review performance, discuss new leasing activity, and improve tenant retention as well as other topics. The Property Manager also expects to host regular Resident functions to foster a sense of community and help to increase tenant retention. An annual property tax review and appeal program will be put in place and annual property insurance reviews will be conducted. Finally, the Asset Manager will leverage economies of scale in order to provide the most cost- effective pricing structure on contractor and vendor services.

The Property is located in Wheaton, Maryland, just 14 miles north of Washington, D.C., and part of the Washington-Arlington-Alexandria, DC-VA-MD-WV Core Based Statistical Area (the Washington CBSA). Washington, D.C. is the seventh most populous metropolitan area in the nation. The $96,382 median annual household income in the area outperforms the nation’s by approximately 64 percent, with 48.2 percent of the region’s households earning an annual income of $100,000 or more.3

The Washington, D.C. metro region has long been viewed as one of the premier job markets in the country, with main economic drivers being federal government, defense and high-tech. The Washington CBSA may experience added job growth as Amazon begins hiring for its newest headquarters, “HQ2”, which will be situated in Arlington, Virginia, just outside of greater Washington, D.C. Amazon plans on investing approximately $2.5 billion, creating more than 25,000 jobs with an average wage of over $150,000.

According to the 2010 Census, the Washington DC MSA had a population of 5,636,232 residents. The Washington DC MSA population is estimated to have grown to 6,249,950 residents as of July 1, 2018, representing an approximate 1.30% growth rate per year over the 2010 census. The growth rate of the Washington DC MSA was above the State of Maryland growth rate of 0.57%, and above the national population growth rate of 0.73% over the same period.

According to the US Bureau of Labor Statistics (“BLS”), the unemployment rate within the Washington DC MSA was 3.4% as of June of 2019. The unemployment rate within the metro is below the state of Maryland rate of 3.8% as of June, 2019 and below the national unemployment rate of 3.7% for July of 2019.

Our market analysis was based on a REIS.com Performance Monitor report for the Suburban Maryland area apartment market (as defined by REIS) containing 2nd quarter 2019 information. According to the report, the Suburban Maryland apartment market, containing 169,229 units, had a vacancy rate of 4.3% during the 2nd quarter of 2019, up 20 basis points from the prior quarter and from the level found one year ago. The Class A vacancy rate was 5.8%, up 30 basis points over the past year. REIS has forecast new construction to total 10,343-units from 2019 to 2023 while net absorption is forecast to total 7,774 units. As a result, the vacancy rate will gradually rise to 5.6% by 2023. Historically, average rents have posted moderate, but steady gains. The last time an annual gain passed 5.0% was 2003, when asking rents increased by 5.1%. Asking rents are up 3.3% over the past year to reach a level of $1,595. Class A rents are $1,872, up 4.2% over the past year. REIS has forecast asking rents to grow by 3.5% in 2019, and by an average of 2.2% per year over the next five years.

Furthermore, the Project is located within the Kensington/Wheaton submarket, which contains just 8,561 units or 5.1% of the overall Suburban Maryland inventory. The current vacancy rate for this submarket is 6.1%. The submarket vacancy rate is forecast to fall to 2.8% by 2020, before rising again, reaching a vacancy rate of 5.6% by 2023. The average asking rental rate within the submarket $1,716/unit per month. Rental rates gains are forecast to lag the overall market. When broken down by unit type submarket rental rates now average $1,455/unit per month for a one bedroom ($1.95/SF), $1,767/unit for a two bedroom ($1.75/SF), and $2,029/unit for a three-bedroom ($1.53/SF).

Future occupancy levels within the Project submarket will be impacted by a new construction moratorium. As of July 1, 2019 permitting for new residential construction on approximately 12% of Montgomery County was halted. Thirteen of Montgomery County’s schools are operating at 120% of capacity, and the Montgomery County action is intended to allow construction of new schools to keep pace with population and housing growth. The new construction freeze does not impact developments currently underway, and will be in place for 12 months, however, the Montgomery County Planning Board could extend the moratorium beyond the additional 12 months depending upon school construction progress. Specifically, for the Project, while 2019 and early 2020 deliveries of new multifamily residential developments are not impacted, in 2020 and beyond, the moratorium will result in decreased competition for the Project, and potentially higher occupancy levels.

Targeted 1st-Year Cash-on-Cash Return: 4.58%
Targeted Cash Range: 4.58% - 5.23%
Targeted Cash Average: 4.86%

DST Due Diligence & Advisory Services

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