Help analyzing 32-unit deal in Fayetteville, NC

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Help analyzing 32-unit deal in Fayetteville, NC

Patrick Madigan
Real Estate Agent · Raleigh, NC · Member since 2015 · 52 posts · 28 votes

I just noticed this 32-unit property in Fayetteville, NC listed on the Triangle MLS a few days ago. This scale property doesn't get listed in our MLS too frequently, so I'm naturally excited to see if it's much of a deal. I'm especially intrigued by "rehab and value-add opportunity," the 14 vacant units, and the property's proximity to such a large military base providing a steady tenant pool. (About 5 minutes from Ft. Bragg, the largest active military base in the world.)

Here are the basics:

- 32 units: all are 2-story townhomes in six separate buildings
- all are 2 bedrooms, 1.5 baths, approx. 960 sqft
- most rent for $550/month, but 14 are vacant
- list price: $895,000
- I have a copy of the rent roll I can email anyone if that's helpful.

As a residential broker and newbie investor, I would love to analyze this deal, but anything above the 4-unit CMA scale is outside of my expertise. I know it's nothing to be intimidated by, so I'm starting to gobble-up all the articles that I can about analyzing deals of this scale. In the meantime, I would love to connect with any of your contacts in the Fayetteville area: multifamily investors, commercial brokers, etc.

If you're local and interested in visiting the property with me, let me know and I'll keep you posted on my analysis and research

Thanks as always, BP!

keywords: Raleigh, Durham, Chapel Hill

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Abraham SaldanaBusiness Member
Investor · Southern Pines NC · Member since 2016 · 64 posts · 46 votes
10y

I would definetly be wary of the Fayetteville apartment market.  They have a new huge apartment complex that is supposed to have up to 1000 units when completed right off all American highway which is he main road into Bragg.  A lot of the bigger apartment complexes in the area realize what's going on and are selling.  Just a word of caution. But if you are doing a value proposition to the market that is not targeted by the newer complexes (~$600-700) this could be an amazing deal.  I am currently looking at applewood apartments nearby so if you need help with comps and target audience let me know. 

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  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    10y

    @Patrick Madigan I would investigate the "why's" and "how much $ to fix" of the 14 vacant units? Is $550 market rent are is that low for the area as well? What would the 14 rent for after a rehab? I'd assume these are hard, down units if there are that many vacant.

    If you answered those we could analyze the price a little more.

    1Reply
  • Logan Hassinger
    Specialist · Fort Worth, TX · Member since 2014 · 528 posts · 226 votes
    10y

    @Patrick Madigan

    I'm expecting to see a lot of deffered maintence outside/inside along with a significant budget to get the 14 vacant units rent ready.  What's the tenant quality with market rents at $700+?

    @Zach Quick gave you some good questions that need to be answered. 

    0Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    10y

    I am local, an active investor, and a regular on BP. 

    I help a few other out of state investors with boots on the ground stuff. Would be happy to help you

    I also can help with commercial lending at some local banks, property management, and such.

    Let me know what you need @Patrick Madigan

    [email protected]Podcast Guest on Show #301
    0Reply
  • Abraham SaldanaBusiness Member
    Investor · Southern Pines NC · Member since 2016 · 64 posts · 46 votes
    10y

    I would definetly be wary of the Fayetteville apartment market.  They have a new huge apartment complex that is supposed to have up to 1000 units when completed right off all American highway which is he main road into Bragg.  A lot of the bigger apartment complexes in the area realize what's going on and are selling.  Just a word of caution. But if you are doing a value proposition to the market that is not targeted by the newer complexes (~$600-700) this could be an amazing deal.  I am currently looking at applewood apartments nearby so if you need help with comps and target audience let me know. 

    2Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    I expect this would be a management challenge. I think you'll see some functional obsolescence and LBP may be evident (most likely), but management will be the bigger nut to crack. I'm not familiar with the immediate area but $550 may be the right price. My concerns would include 1) crime, 2) proximity of other buildings you don't control, 3) (local) apartment supply analysis, 4) scope of capital requirements, 5) rehab grants/funding, if any, available 6) loss run report

    @Patrick Madigan I am in the Fuquay area for about a week and would take you up on visiting the property if this Friday or Monday next week....

    1Reply
  • Andrew K.
    Rental Property Investor · San Antonio, TX · Member since 2011 · 266 posts · 158 votes
    10y
    Patrick Madigan I just saw that listing today as well. I live in Fayetteville and am interested in helping in anyway that I can. This property seems ripe for a value play, but I agree with what's already been mentioned--hard to tell if the current price makes it a good deal. I'm interested in touring the place with you. I can't offer the same assistance as Alexander Felice, but I'm more than willing to be your local extra set of eyes and ears. Abraham Saldana could you provide more details on the apartment complex you mentioned? Thanks! -Andrew
    0Reply
  • Patrick Madigan
    OP
    Real Estate Agent · Raleigh, NC · Member since 2015 · 52 posts · 28 votes
    10y

    Thanks everyone for the input! I spoke with the listing agent today who was very helpful and forthright about things. He sent me the pro forma with basic estimates for rehab costs (300K), stabilized NOI (100K after raising rents to $595/mo after rehab), and more. It's still a bit over my head, but really helpful as I begin to dig into analyzing--and one day acquiring!--larger multifamily properties.

    @Chris Martin - Still down for Monday? The listing agent isn't available to open up any of the units, but I plan to visit anyway just to walk the property and further my analysis education. I'd love your input. Last night at the BP meetup @Dawn Brenengen said she would tag along for the ride, and @Alexander Felice said he can swing by once we get there to add some local knowledge/input. It'll be a mini-mastermind and we'd love to have you. @Andrew K. you are welcome to join.

    0Reply
  • Eric L.
    Rental Property Investor · Clarksville, TN · Member since 2014 · 85 posts · 37 votes
    10y

    Local to Fayettenam looking to get into multifamily in the future. Just want to follow this.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    Regarding "The listing agent isn't available to open up any of the units, but I plan to visit anyway just to walk the property and further my analysis education." With that many empty units, I'd ask what's going on. No lock box on even one of the 14 empty units? Do they not use CSS down there? So of the 14 empty, how many are currently marketable units? Pictures show maybe one?

    I would expect a licensed agent (which you are, right?) would have no issue getting access to at least some of the empty units. I don't mind showing up but it has to be a reasonable experience (like seeing what the problems are, which may just be inside the units!) so see if you can get keys. If the listing agent doesn't want tire kickers and lookie-loos, I can email you a POF, but if I'm going the trouble, I'd like to invite my apartment partner...

    1Reply
  • Patrick Madigan
    OP
    Real Estate Agent · Raleigh, NC · Member since 2015 · 52 posts · 28 votes
    10y

    @Chris Martin - good thinking. The agent said they've been planing to get a lockbox on the property ASAP, but he wasn't planning to make a special trip down there for this "field trip" of sorts. Your POF might change his mind, or he might let me take a few keys with us since I'm licensed. I've just emailed him and will let you know what he says. Your apartment partner is absolutely welcome to join.

    0Reply
  • Michael Newman
    Dpo, AE · Member since 2016 · 50 posts · 3 votes
    10y

    I'm new at this but looking at multis and the first thing that caught my eye was the pro forma numbers. Is the seller basing his price on this pro forma? You should base the price on its current financials not pro forma. That would be paying the seller for the hard work and investment you will be doing. What is the current NOI, Cap Rate? I also reviewed the photos and I wasn't sure the cap ex included landscaping etc.. I think you need to greatly enhance curb appeal too to get renters in the door. 2 cents.

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Michael Newman:

    Is the seller basing his price on this pro forma? You should base the price on its current financials not pro forma. That would be paying the seller for the hard work and investment you will be doing. What is the current NOI, Cap Rate?

    ???? The calculation starts out with potential gross income. What if the property was vacant new construction? See how you need to use a correctly calculated NOI.

    0Reply
  • Michael Newman
    Dpo, AE · Member since 2016 · 50 posts · 3 votes
    10y

    Bob

    Understand what your saying and I could be wrong  since I am new but in this case it has renters but 14 units are vacant. I would run the numbers on the occupied units and not using pro forma numbers when estimating a price to purchase. the vacant units looked bad from the photos so not getting $ from them till renovations.  My logic may be off but I would pay for the actual past performance not hopes for the future.  If he can't get them occupied after Reno then his negative cash flow will be even larger.  Welcome any corrections if my thought process is flawed.  Thx  

    0Reply
  • Chris L.
    Merrick, NY · Member since 2015 · 21 posts · 5 votes
    10y
    Patrick, Food for thought: http://www.newsobserver.com/news/local/article10059008.html - outdated, but still relevant. The article references a proposed closure of the Air Force 440th airlift wing - that already happened. Also, take a look at the significant drop in ranking for Fayetteville on the Milken Institute's 2015 Best Cities list : http://www.milkeninstitute.org/publications/view/758
    2Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Michael Newman:

    Bob

    Understand what your saying and I could be wrong  since I am new but in this case it has renters but 14 units are vacant. I would run the numbers on the occupied units and not using pro forma numbers when estimating a price to purchase. the vacant units looked bad from the photos so not getting $ from them till renovations.  My logic may be off but I would pay for the actual past performance not hopes for the future.  If he can't get them occupied after Reno then his negative cash flow will be even larger.  Welcome any corrections if my thought process is flawed.  Thx  

     Here's a post from another thread addressing valuation of under performing properties.  Imagine a similar property operating to market.

    https://www.biggerpockets.com/forums/432/topics/34...

    Let's look at it from the market's perspective. Our two identical buildings and a third owned by Bob next door that is a fifth the size of the first two that produces $20,000 NOI at market. At 8% cap rate that property is valued at $250,000. But there is no upside. Should it and the property capable of generating $100,000 NOI sell for the same amount? Of course not. The market is going to see Frank's place as a $750,000 asset. But it has issues. And Frank is lazy not stupid.

    So Neil wants to pay only $250,000 for this. But Ben comes in and underwrites this at $500,000 because he knows the $150,000 to get it to market only consists of $70,000 hard costs and the $80,000 is his reward for taking the risk and for his time. He wants the extra $50,000 because he's a nice guy and he is worth it. Now Brian is in the market also and he has a crew sitting around waiting for the next project and his leasing team is telling him they are getting calls everyday for space in a good property. Brian looks at the property and knows he can fix the property for $50,000 because he Is his own contractor and He knows he can lease up within a month of repairs so he has $20,000 less rent loss than Ben would have. So Frank has Ben's $500,000 offer, Neil's $250,000 offer and Brian's $600,000 offer. Now Brian will only spend $110,000 So he is getting a $750,000 property for $710,000. Who will Frank sell to?

    Another way to look at this is if Bob builds another identical property next door. As it is completed Mrs. Bob files for divorce and court orders her half. What is the value of the empty building? Bob goes before Judge Neil and tells him he will give up half of the $750,000 building and keep the worthless new building. What's your verdict?

    1Reply
  • Kevin Manz
    HVAC Tech · Fort Wayne, IN · Member since 2015 · 423 posts · 223 votes
    10y

    Just something interesting I heard from a Kevin Bupp podcast. 98% of commercial properties are sold off market. One reason being, is Realtors have a buyers list, and if something comes available, they know who will buy what. The very few properties that hit the MLS are the duds that have been thoroughly combed through by the serious players. This is something to consider. He did say a few may slip through the cracks.

    I wish BP would put out podcast more frequently. 

    0Reply
  • Eric L.
    Rental Property Investor · Clarksville, TN · Member since 2014 · 85 posts · 37 votes
    10y
    Originally posted by @Chris L.:

    Patrick,

    Food for thought:

    http://www.newsobserver.com/news/local/article10059008.html - outdated, but still relevant. The article references a proposed closure of the Air Force 440th airlift wing - that already happened.

    Also, take a look at the significant drop in ranking for Fayetteville on the Milken Institute's 2015 Best Cities list :

    http://www.milkeninstitute.org/publications/view/758

     I see your point, however Bragg is a major military installation which will never go away. The biggest thing he would be fighting with owning in this area is the fact the competition for apartments is so large. The benefit is the competition is more class A or B type units. If he's looking for Class C then he would be fine. The post and local colleges will keep this area inhabited. 

    1Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    A couple comments to prior posts.

    This apartment is an old, no frills, no amenities, bread and butter, low end apartment. It's a Class C apartment that needs some (a lot of) capital infusion. It could be successful with the right ownership and management. I think the property has neither. I agree with @Eric L. about his assessment of competition. I've done limited analysis, but the $550 price tag appears correct for this apartment given their "rehab". I disagree with @Chris L. who thinks Class A properties are relevant, via the link to the article. At twice (or more) the sq.ft. price, the story is about a different market.

    From a short inspection, I saw no vacant units in current marketable condition, but one was getting new carpet and paint during our visit. That appears to be their status quo rehab. That, IMO, is one of the big problems. So, any numbers above $550 are fallacy until owners perform a "real" rehab. I'm thinking of words... Lipstick. Pig.

    0Reply
  • Chris L.
    Merrick, NY · Member since 2015 · 21 posts · 5 votes
    10y
    Originally posted by @Eric L.:
    Originally posted by @Chris L.:

    Patrick,

    Food for thought:

    http://www.newsobserver.com/news/local/article1005... - outdated, but still relevant. The article references a proposed closure of the Air Force 440th airlift wing - that already happened.

    Also, take a look at the significant drop in ranking for Fayetteville on the Milken Institute's 2015 Best Cities list :

    http://www.milkeninstitute.org/publications/view/7...

     I see your point, however Bragg is a major military installation which will never go away. The biggest thing he would be fighting with owning in this area is the fact the competition for apartments is so large. The benefit is the competition is more class A or B type units. If he's looking for Class C then he would be fine. The post and local colleges will keep this area inhabited. 

    From my research of the Fayetteville market, it seems as though there is plenty of Class - C inventory (SFR & apartment).

    The article is still relevant in the sense that the vacancy rate still remains at roughly the same elevated level (9%+) and if the post & local colleges were enough to absorb the inventory created by the Army & Air Force realignments, then the vacancy rate would expect to decrease - and that has not really transpired.

    0Reply
  • Chris L.
    Merrick, NY · Member since 2015 · 21 posts · 5 votes
    10y
    Originally posted by @Chris Martin:

    A couple comments to prior posts.

    This apartment is an old, no frills, no amenities, bread and butter, low end apartment. It's a Class C apartment that needs some (a lot of) capital infusion. It could be successful with the right ownership and management. I think the property has neither. I agree with @Eric L. about his assessment of competition. I've done limited analysis, but the $550 price tag appears correct for this apartment given their "rehab". I disagree with @Chris L. who thinks Class A properties are relevant, via the link to the article. At twice (or more) the sq.ft. price, the story is about a different market.

    From a short inspection, I saw no vacant units in current marketable condition, but one was getting new carpet and paint during our visit. That appears to be their status quo rehab. That, IMO, is one of the big problems. So, any numbers above $550 are fallacy until owners perform a "real" rehab. I'm thinking of words... Lipstick. Pig.

    The article focuses on the pressure that management companies and owner's are experiencing due to the decreasing population & realignment of the armed forces. It may reference specific examples of A - class properties; however, it is not only referencing A - class. It is relevant, because the present day economics are not much different.

    Basically, if you were thinking of taking on a 32-unit multi for the first time, would you prefer to swim with or against the current?

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    My point is that there are multiple markets (just like any area) and it's key to know which one applies to the subject at hand. In general, in tough times concessions occur more at the higher end places and well run lower end (low amenities) places can actually benefit. This property, BTW, isn't well run. And, yes, there appears to be low end competition everywhere.

    This is a classic turnaround play that reminds me somewhat of a Class C we did in 2003-4, although ours was about 3 times bigger and in a different market.

    My summary: price is too high for what you get, which is a $400K+ rehab liability to get you a marketable Class C property, and that doesn't address LBP and the $550/mth rent expectation.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    @Patrick Madigan did this property sell? I can't find it on realtor.com or deaton's site. The property card shows a book/page reference from 2000.

    0Reply
  • Patrick Madigan
    OP
    Real Estate Agent · Raleigh, NC · Member since 2015 · 52 posts · 28 votes
    9y

    @Chris Martin - Currently "contingent" on TMLS. Status was changed on 10/06 at 46 days on market. TMLS shows 12/06 as tentative closing date, so we'll likely see a change soon.

    You interested? :)

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    Possibly, if it doesn't close.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    I feel like a little kid in the REI back seat... driving long distance to Fayetteville...

    "did it close yet?"   "when is it going to close?"

    The real question is, are you interested in this? I cobbled together some seasoned WC talent and we're thinking about F-Ville MF in 2017. Just need to know about capital and/or management input if you are interested. I, personally, anticipate a 25% +/- 10% stake since I have a full plate in Columbus/Onslow/Martin counties.

    Talk to Steve and see what's going on with this parcel. See if they want to sell the back land part too. For how crappy the place is, they should throw that in for free;)

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