Although Skyland operates under DC Rent Control, there is potential to increase rents through other avenues including DC’s Housing Choice Voucher Program (HCVP), converting to a Low-Income Housing Tax Credit (LIHTC) program, or organic rent growth tied to longer tenancy turnover, all of which the ROSS Companies is well-positioned to facilitate given their local experience. Secondly, the Property is located in a Qualified Opportunity Zone which could present long-term tax advantages in addition to fueling investment sales locally in the future. Finally, while the retail component of this investment represents approximately 6.1% of total income, the Real Estate Company noted the potential to redevelop some of this space into additional apartments.
Located six miles from the Washington DC CBD, Anacostia appears to be a fundamentally strong rental market. Per Axiometrics/RealPage, rent growth and vacancy in the submarket currently average 4.3% and 2.2%, respectively. Furthermore, average rents in Anacostia are among the cheapest in the D.C. metro, while gentrification in eastern D.C. neighborhoods is pushing residents into Anacostia further driving demand. Additionally, across from the Property is the development site of Skyland Town Center, which is currently under construction and will ultimately be the largest retail destination in Southeast Washington DC upon completion with an estimated 140,000 SF of retail and 120,000 SF of medical office space.
RealtyMogul has independently invested alongside Georgetown Partners and ROSS Companies on prior transactions and established strong working relationships with principals at both firms. While Georgetown Partners is vertically integrated and appears capable of asset, leasing, and property management functions, ROSS Management Services (RMS) has been engaged to oversee property and construction management at the Property. RMS was established in 1988 and is currently one of the most active multifamily property management companies in the Mid-Atlantic region.
$25,100,000
The Property includes a community garden with a playground, two laundry facilities and 10,666 SF of retail space.
Georgetown Partners
Georgetown Partners is a private real estate investment and management firm focused on the Mid-Atlantic Region. The firm targets both stabilized and value-add opportunities and has over 20 years of commercial real estate experience. Georgetown Partners is vertically integrated and capable of all asset, leasing, and property management functions. RealtyMogul has previously invested alongside Georgetown Partners on Commonwealth Office in Richmond, VA.
http://www.gtownpartners.com/In this transaction, RealtyMogul investors are to invest in RealtyMogul 145, LLC ("The Company"), which is to subsequently invest in RM Skyland Apartments, LLC ("The Target"), a limited liability company that will hold title to the Property. Georgetown Partners ("The Real Estate Company") is under contract to purchase the Property for $25.1 million ($112,054 per unit) and the total project cost is expected to be $27.3 million ($121,964 per unit).
The Real Estate Company intends to implement a value-add strategy whereby it will acquire, renovate, and generally reposition the Property more favorably within the submarket and its competitive set over a five-year time horizon. The Real Estate Company has negotiated an acquisition price of $25.1 million, $4 million of which is attributed to the retail component, resulting in a relatively attractive basis of $94,000 per unit for the multifamily, and $112,964 per unit combined. The Real Estate Company plans to invest $1,747,746 and renovate 116 units over a five-year horizon (~2 units/month). In doing so, they also intend to reduce ongoing operating costs by addressing deferred maintenance and focusing on energy efficient improvements. The Real Estate Company has engaged ROSS Companies to oversee property and construction management at the Property.
Although the Property operates under DC Rent Control, there is potential to increase rents through other avenues, including DC’s Housing Choice Voucher Program (HCVP) or converting to a Low-Income Housing Tax Credit (LIHTC) program. As underwritten, the Real Estate Company conservatively assumes that they will not achieve heightened rents through either of these programs, although they do expect to pursue and retain tenants within these programs over time, which will be accretive to the returns illustrated. Long term, the Property stands to benefit from the delivery of an adjacent $180 million mixed-use development, which includes a LIDL grocery store and CVS. Upon completion of this project, the Real Estate Company intends to consider the feasibility of redeveloping the retail space into 30-35 multifamily units that will not be subject to rent control. While this strategy is also not contemplated in the current underwriting, it presents another opportunity.
Realty Mogul, Co. (“RM”) has the opportunity to invest $5.5 million in joint-venture, limited partner equity to facilitate the acquisition and renovation of Skyland Apartments (the "Property"), a 224-unit, Class C, garden-style apartment community located in the Anacostia submarket of Washington, DC. Georgetown Partners (the "Real Estate Company") is acquiring the Property for a total estimated cost of $25.1 million or $112,054/unit.
The primary objective of this investment is to implement exterior and interior improvements immediately after acquisition and sell the Property within five (5) years of acquisition.
Built in 1939 and renovated between 1991 and 1992, Skyland Apartments is comprised of one- (153) two- (65) and three-bedroom (6) floor plans combining to 224 units in suburban Washington DC, and operates under the Rental Housing Act of 1985 (i.e. rent control). The majority of units have received upgrades to appliances, cabinetry, countertops, and flooring on-turn, while exteriors and mechanical systems have been upgraded in recent years as well. The Property also includes a 10,666 SF retail component which is fully leased to seven tenants. Annual retail income averages $20 per square foot and comprises approximately 6.1% of total annual revenue over the projected hold period.
The Property is located east of the Anacostia River, six miles from the Washington, DC CBD, and is walking distance from Good Hope Market (which includes a Safeway and Starbucks), and 11th street bridge. The Property is less than two miles from I-295, I-695, Naylor Road Metro, and seven miles from Ronald Reagan National Airport.
| Unit Type | # of Units | Avg SF/Unit | In-Place Rent | Post-Reno Rent |
|---|---|---|---|---|
| 1 Bed, 1 Bath | 114 | 575 | $1,029 | $1,029 |
| 1 Bed, 1 Bath Duplex | 39 | 723 | $1,165 | $1,196 |
| 2 Bed, 1 Bath Duplex | 65 | 810 | $1,408 | $1,742 |
| 3 Bed, 1 Bath Duplex | 6 | 970 | $1,631 | $2,104 |
| Total | 224 | 680 | $1,171 | $1,361 |
Retail
| Tenant | Description | SF | $/SF |
| Vision Hair Salon | Beauty Salon | 1,162 | $22.07 |
| Erim Eyecare | Optometrist | 2,875 | $19.28 |
| Like That Barber Shop | Barber Shop | 1,490 | $19.83 |
| Capitol City Training | Government Office | 824 | $14.93 |
| ACE Cash Express | Financial Solutions | 1,389 | $23.38 |
| DRS Medical Supply | Medical Equipment Rental | 1,500 | $18.17 |
| Elite Telecom | Telecommunications Provider | 1,426 | $26.85 |
| Total | 10,666 | $20.71 | |
Lease Comps
| Park Naylor | Capital Crossing | Marlborough House | Carriage Hill | Total/Averages | Subject | |
| Submarket | Southeast DC | Suitland/District Heights/Capitol Heights | Prince George's County | Suitland | Anacostia | |
| Year Built | 1964 | 1966 | 1964 | 1965 | 1965 | 1939 / 1992 |
| # of Units (1x1) | 51 | 102 | 217 | 175 | 136 | 153 |
| Rent (1x1) | $1,390 | $1,345 | $1,410 | $1,380 | $1,381 | $1,223 |
| SF (1x1) | 580 | 785 | 714 | 577 | 664 | 613 |
| Rent/SF (1x1) | $2.40 | $1.71 | $1.97 | $2.39 | $2.12 | $2.00 |
| # of Units (2x1) | 181 | 200 | 53 | 120 | 139 | 10 |
| Rent (2x1) | $1,678 | $1,444 | $1,665 | $1,640 | $1,607 | $1,605 |
| SF (2x1) | 1,000 | 906 | 940 | 858 | 926 | 810 |
| Rent/SF (2x1) | $1.68 | $1.55 | $1.77 | $1.91 | $1.73 | $1.98 |
| # of Units (3x1) | 2 | 75 | 39 | 6 | ||
| Rent (3x1) | $1,671 | $1,740 | $1,706 | $1,655 | ||
| SF (3x1) | 1,060 | 996 | 1,028 | 970 | ||
| Rent/SF (3x1) | $1.58 | $1.75 | $1.66 | $1.71 | ||
| Distance from Subject (mi.) | .3 miles | 1.2 miles | .6 miles | 1.3 miles | .9 miles | N/A |
Sales Comps
| 3930 Suitland | Ridgecrest Village | Regency Court | Dunhill South | Capital Crossing | Total/Averages | Subject | |
| Date | Sep '19 | Feb '19 | Aug '18 | May '19 | Sep '19 | May '20 | |
| Submarket | Capitol Heights | Anacostia | Anacostia | Anacostia | Anacostia | Anacostia | |
| # Units | 351 | 272 | 115 | 116 | 351 | 241 | 224 Units |
| Year Built | 1960 | 1951 | 1962 | 1965 | 1960 | 1,960 | 1939 / 1992 |
| Average SF | 783 | 883 | 867 | 116 | 783 | 686 | 680 |
| Purchase Price | $52,000,000 | $28,560,000 | $12,250,000 | $14,640,000 | $52,000,000 | 31,890,000 | $25,100,000 |
| $/Unit | $148,148 | $105,000 | $106,522 | $126,207 | $148,148 | 126,805 | $112,054 |
| Cap Rate | N/A | 4.80% | N/A | 5.80% | N/A | 5.30% | 5.60% |
| Distance from Subject (mi.) | 1.5 miles | 1.1 miles | 2.7 miles | 3.4 miles | 1.2 miles | 2.0 miles | N/A |
Market Overview
Per CoStar, strong renter household formation, a healthy job market, and costly homeownership have been key drivers for apartment fundamentals in the Washington D.C. market. The unemployment rate in the Washington D.C. market on average has been 1.7% lower than that of the U.S. since 2000. Additionally, over twenty percent of the 3.4 million jobs in the metro are related to the government. Washington's dependence on the federal government acts as a stimulus in times of economic pullbacks and the apartment sector has traditionally been strong during recessionary periods. Though annual rent growth reached a low point of 0.6% in 2009, it did not fall negative during the Great Recession. Comparatively, annual rent growth in the U.S. plummeted to -4.3% in 2009. Ten-year historical annual rent growth for the Washington D.C. market is about 2.3% and rent growth in 2019 was 2.4%.
Anacostia has been a relatively stable rental market with little market-rate construction and low vacancy rates. At less than $40,000, the median annual household income is among the lowest in the metro. As a result, the submarket's population is a renter-by-necessity base with almost 70% of the submarket's residents renting, lending to historically low vacancy. These demographics create steady demand for Class C apartments in one of the metro's most affordable submarkets. At $1,220/month, average rents are the lowest of any neighborhood in D.C. and among the lowest in the metro. Average vacancy for Class C multifamily product in the Anacostia submarket hit a peak of 7.0% in 2008. Occupancy for Skyland Apartments' comparables has averaged 97.5% between 2005 and 2019, with the comps' lowest occupancy over the past twenty years hitting 94.1% in 2009. Moreover, the last recession did not appear to affect Skyland Apartments' fundamentals as occupancy at the property has averaged 96.7% over the past twenty years and occupancy at the property was 97.7% in 2009.
As of March 2020, 725 units were under construction, representing 4.9% of the total 15,000 units of multifamily space in the submarket. New construction is difficult to justify as rents in the submarket are so low. Many cities are considering construction halts, which would effectively push this construction timeline further into the future. This would increase construction lengths and costs for apartment developers, with the implications of that effect still uncertain. The market as a whole has been able to absorb thousands of new units each year and the demand pool has appeared resilient.
Demographics
| Demographic Information (2019) | 1 Mile Radius | 3 Mile Radius | 5 Mile Radius | ||
| Population | 36,893 | 264,012 | 599,718 | ||
| Population Projection (2024) | 39,274 | 279,639 | 638,393 | ||
| Average Age | 37.0 | 36.8 | 36.6 | ||
| Median Household Income | $34,398 | $57,017 | $69,178 | ||
| Average Household Size | 2.3 | 2.2 | 2.2 | ||
| Median Home Value | $337,209 | $336,532 | $356,552 | ||
| Population Growth 2019 -2024 | 6.45% | 5.92% | 6.45% | ||
| Sources of Funds | Cost |
|---|---|
| Debt | $16,310,000 |
| Equity | $11,009,942 |
| Total Sources of Funds | $27,319,942 |
| Uses of Funds | Cost |
| Purchase Price | $25,100,000 |
| Acquisition Fee | $300,000 |
| Broker Dealer Fee | $160,000 |
| CapEx | $782,498 |
| Loan Fee | $181,255 |
| Tax & Insurance Reserve | $104,244 |
| Working Capital | $50,000 |
| Closing Costs | $641,945 |
| Total Uses of Funds | $27,319,942 |
The expected terms of the debt financing are as follows:
- Total Estimated Proceeds: $16,310,000
- Estimated Rate (Fixed): 3.49%
- Amortization: 30 years
- Term: 5 years
- Interest Only: 108 months
- Prepayment Penalty: TBD
- Extension Options: TBD
There can be no assurance that a lender will provide debt on the rates and terms noted above, or at all. All rates and terms of the debt financing are subject to lender approval, including but not limited to possible increases in capital reserve requirements for funds to be held in a lender-controlled capital reserve account.
The Target intends to make distributions to investors (the Company and Real Estate Company, collectively, the "Members") as follows:
- Pari passu, all excess operating cash flows to a 10.0% IRR to the Members;
- 90.0% / 10.0% (90.0% to Members / 10.0% to Real Estate Company) of excess cash flow and appreciation to a 14.0% IRR to the Members;
- 70.0% / 30.0% (70.0% to Members / 30.0% to Real Estate Company) of excess cash flow and appreciation thereafter.
Note that these distributions will occur after the payment of the Company's liabilities (loan payments, operating expenses and other fees as set forth in the LLC agreement, in addition to any member loans or returns due on member loans).
Certain fees and compensation will be paid over the life of the transaction. The following fees and compensation will be paid:
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Acquisition Fee | $300,000 | Real Estate Company | Capitalized Equity Contribution | 1.0% of the Property purchase price |
| Broker-Dealer Fee | $160,000 | North Capital | Capitalized Equity Contribution | Greater of $50,000 and 4.0% of the equity raised by RealtyMogul 145, LLC |
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Management and Administrative Fee | 1.0% of amount invested in RealtyMogul 133, LLC | RM Manager, LLC | Distributable Cash | RM Manager, LLC is the Manager of RealtyMogul 133, LLC and a wholly-owned subsidiary of Realty Mogul, Co. (2) |
| Asset Management Fee | 2.0% of Effective Gross Income | South Coast Commercial | Distributable Cash |
(1) Certain employees of Realty Mogul, Co. are registered representatives of, and are paid commissions by, North Capital Private Securities Corp., a Delaware corporation ("North Capital"). In addition, North Capital pays a technology provider services fee to Realty Mogul, Co. for licensing and access to certain technology, reporting, communications, branding, entity formation and administrative services performed from time to time by Realty Mogul, Co., and North Capital and Realty Mogul, Co. are parties to a profit sharing arrangement.
(2) Fees may be deferred to reduce impact to investor distributions.
The above presentation is based upon information supplied by the Real Estate Company or others. Realty Mogul, Co., RM Manager, LLC, and The Company, along with their respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.