Meadow Wood Apartments, Medford Oregon:
Supply constrictions and replacement costs are our core determinants of value in improved property projects, such as apartments, condo conversions, and vertical construction. Management problems layered on top of these fundamentals are our forte, and add still more value for investors when solved.
The Meadow Wood is an 85 property we purchased in an attractive, established location at a significant discount to replacement cost from a national REIT. This discount alone indicated strong value, but financial mismanagement added icing to the cake.
The property was purchased at a cap rate of then-current cash flow. The sellers managed from a distance with little attention to local market forces and no significant maintenance. Our analysis revealed that though the cap rate was low, the NOI of the property was far below its potential. We improved occupancy from 85% to 100% within 6 weeks of purchase, and NOI jumped 35% in subsequent months.
This cash flow improvement alone, if harvested, would have produced a return in excess of 30% for our investors in a matter of months, however we chose to execute our plan, laid out prior to purchase, to re-configure the property into condominiums in the growth constrained community. Over $1M of exterior and interior renovations have produced a significantly enhanced property, and rapid sales confirm the market opportunity. Our customers are generally first time buyers and downsizers attracted to the area for its quality of life.