Woodbridge, VA Multifamily, DST

Woodbridge, Virginia

ASSET CLASS:  Class B Value-Add Multifamily
OFFERING SIZE:  $40,950,000
MINIMUM INVESTMENT:  $100,000
LEVERAGE:  56.19%
# OF UNITS:  409
YEAR BUILT:  1989
HOLD PERIOD:  7-10 Years
OCCUPANCY:  97% (as of July, 2019)
TARGETED YR.-1 RETURN:  5.45%

Located in the Washington, D.C. MSA, an area renowned for its stability, Approximately 30-minute drive from Amazon HQ2, where roughly 25,000 new jobs will be created. Reduced competitive pressure due to limited new construction - 217 market rate units under development in the Woodbridge submarket in the next 36 months. Rail access to Alexandria, Arlington and downtown Washington, D.C. via VRE allows residents to easily commute to local employment centers. Proven value-add strategy will be used to drive revenue and investment value. Potential to capitalize on strong market fundamentals in a highly desirable location driven by new Class A communities with much higher rental rates. The significant rental gap of $350 to $620, comparing the Property to Class A competition in the Woodbridge submarket, enhances the opportunity for strong organic rent growth while maintaining affordability compared to newer communities.

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 the 100 units, 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 a sale based on a capitalization rate-based exit, currently estimated to be an additional 25%. The Sponsor has also budgeted for upgrades to the property's landscaping and exterior lighting.

From a market perspective, the Property presents an 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 net operating income by increasing the Property’s rental rates to market.

Given the lack of new Class-B product that is capable of being built, the Property is well positioned to continue driving top line revenue on unit turns and capitalize on the 11,000 new residents projected to be added within 3 miles over the next 5 years. The head height to Class-A rents coupled with strong occupancy demonstrates a clear path to drive rents.

Amazon plans to add a minimum of 25,000 jobs by 2030 at its HQ2 campus, located 30 minutes from the Property, with the potential for 12,850 more by 2034, for a total of 37,850. Northern Virginia outperforms both the Washington, D.C. region and the nation with an unemployment rate of 2.7% as of February 2019.

The Project is located in Prince William County, Virginia a part of the Washington- Arlington-Alexandria, DC-VA-MD-WV metropolitan statistical area (the “Washington, DC MSA”). 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 MSA was above the State of Virginia growth rate of .79%, and above the national population growth rate of .73% over the same period. The East Prince William County submarket has exhibited annual average effective rent growth of 4.0% since 1998 and 2.9% in the 12 months ending March 2019.

According to the US Bureau of Labor Statistics (“BLS”), the unemployment rate within the Washington DC MSA was 3.1% as of May of 2019. The unemployment rate within the metro is above the state of Virginia rate of 2.9%, but below the national unemployment rate of 3.7%.

Apartment Market

Our market analysis was based on a REIS.com Performance Monitor report for the Northern Virginia area apartment market (as defined by REIS) containing 1st quarter 2019 information. According to the report, the Northern Virginia apartment market, containing 192,627 units, had a vacancy rate of 5.0% during the 1st quarter of 2019. While occupancy is stable, Amazon’s announcement to locate its new headquarters, dubbed HQ2, in Crystal City is creating uncertainty in the market. Demand for multifamily units is anticipated to spike, however, developers will likely respond in kind. REIS forecasts 19,384 new units will be completed between 2019 and 2023 while net absorption is anticipated to be 14,049 units, allowing the vacancy rate to rise to 7.0% by 2023. However, REIS commentary on the market would indicate a higher level of uncertainty regarding these figures than other metro forecasts. According to the report, the average rental rate within the Northern Virginia market is currently $1,873/unit per month. Rents are forecast to grow at an average pace of 2.9% per year over the next five years.

The Project is furthermore located within the Prince William County submarket, which contains 19,661 units or 10.2% of the overall Northern Virginia inventory. The current vacancy rate for this submarket is 5.4%, down 30 basis points from the prior quarter, and up 70 basis points over the prior year. Similar to the overall market, new completions are anticipated to put upward pressure on the vacancy rate. The average asking rental rate within the submarket $1,472/unit per month. Rental rates are anticipated to grow at a rate of 2.72%. When broken down by unit type submarket rental rates now average $1,355/unit per month for a one bedroom ($1.83/SF), and $1,525/unit for a two bedroom ($1.56/SF).

Investment Market

Pursuant to the Second Half 2018 CB Richard Ellis Cap Rate Survey, on a national basis cap rates for suburban multifamily remained stable during the second half of 2018. The average suburban multifamily cap rate was 5.56%, just three basis points higher than the first half 2018 cap rate. Cap rates changes were marginal across all classes; Class A cap rates rose by the greatest margin, up seven basis points to 5.02%, while Class B cap rates were up three basis points and Class C cap rates were down by two basis points. The cap rate spread between Class A and Class B cap rates is now just 42 basis points, the lowest level ever reported by the CBRE Cap Rate Survey.

Investors’ strong appetite for suburban value-add assets and a willingness to accept lower returns to stay competitive in the marketplace are reflected in low expected returns on cost for value-add opportunities. The average return for value-add assets was 6.3% for all classes in the 2nd half of 2018; for Class A assets, the return was 5.69%. According to CBRE, suburban multifamily pricing is anticipated to remain stable in the 1st half of 2019 by about half (52%) of survey respondents, down from 77% of survey respondents during mid-year 2018. Another 41% expect modest cap rate increases (one to 25 basis points) during the first half of 2019.

Specific to the Project, CBRE notes cap rates within the Washington, DC MSA among stabilized Class A assets ranged from 4.25% to 4.75% and Class B assets ranged from 5.00% to 5.50%

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: 32
Units Managed: 83,000
Date Founded: 1993
Headquarters: Des Moines, IA
Website

Targeted 1st-Year Cash-on-Cash Return: 5.45%
Targeted Cash Range: 5.01% - 6.60%
Targeted Cash Average: 5.66%
Targeted Cash Average w/ Principal Paydown: 6.88%
Projected IRR: 8.55%

All-In Price: $93,470,000
Purchase Price: $80,500,000
Appraised Value: $80,800,000
Loan Amount: $52,520,000
Equity Raise: $40,950,000
Reserves: $4,848,768
Reserves to All-In Price: 5.02%
Net Load: $8,121,232
Net load to Equity: 19.83%
Net Load to All-In Ratio: 8.69%
Appraised Net Load: $7,821,232
Appraised Net Load to Equity: 19.10%
Appraised Net Load to All-In Price: 8.37%
All-In $/Ft.: $284,91
All-In $/Unit: $228,533

Net Operating Income: $4,303,031
Purchase Cap Rate: 5.35%
All-In Cap Rate: 4.60%
Breakeven Exit Cap: 6.74%
Breakeven Exit Cap Rate Spread: 139 bps
Appraised Cap: 5.33%
Appraised Cap Rate Spread: 141 bps

Loan Amount: $52,520,000
Term: 10 Years Fixed
Interest Only Period: 5 Years
Amortization Period: 30 Years
Interest Rate: 3.51%
Lender: Walker & Dunlop, LLC
LTV: 56.19%
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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