Case Study: Heartland Village Square Apartments (114 units)
Updated: Aug 25, 2020
The property had been operated as a senior independent living facility on a 40 year lease to a nursing facility organization. The property was held in a trust by an elderly retired gentleman. The lease was due to expire in around 45 days. Due to a disagreement between the landlord (trust) and tenant (nursing operator), the tenant was completely uncooperative in providing financial operating data or operating assistance in transitioning management. The owner wanted to sell, which made it very difficult to find a third party management company willing to take on 114 units for a 30-90 day assignment.
In order to market this property, the NAI Wisinski Great Lakes Team had to produce a valuation within a week with no actual financials to work from. In addition, a flooding issue related to nearby over development was causing recurring damage to 14 units. Using our extensive database of property operating data, the NAI team was able to utilize bench marking to create an income and expense statement that realistically reflected how the property should be operating as a market rate apartment community. This allowed us to produce a defendable valuation of $5,250,000, assuming no deferred maintenance (flooding issue). This represented a fair price that gave a buyer some room to create additional value. In addition, this price provided the owner with a potential sale price that was much higher than the $3,300,000 valuation given by a competing multifamily broker. We were aware that the owner was willing to take far less for the asset and that he was in a vulnerable position. However, integrity and the client’s best interests come first. Therefore, we did not take the easy way. We decided to push for every dollar that the asset was really worth.
We also reached out to several property management companies who have the capability to handle a 114 unit property. The challenges included taking over a large property that would come with no documentation or operating history and would need to be immediately restaffed on the first day. The management company needed to be prepared to take the assignment within around a month. In addition, the assignment may only last for 30-90 days, until a transfer of ownership occurred. There was no guarantee that a new owner would be willing to retain management. In order to ensure a smooth continuation of operations, we had to pull a favor from a management group we had worked with in the past.
The recurring flooding issue and 14 down units created a serious potential objection for prospective buyers. The NAI team decided to quickly quantify the problem in order to make it more palatable and understandable to buyers. This approach prevents buyers from overestimating the cost of the remedy. It also saves due diligence time and money for buyers and keeps more conservative buyers from walking away from the opportunity. We were able to quickly bring in a reputable civil engineer, who was familiar with the county drain problem, and was able to come up with a structural solution and a cost estimate of $450,000.
Using our deep company resources, we were able to produce a comprehensive offering memorandum and both a physical and digital marketing campaign within less than a week. We then immediately put the property on the market. An email blast was quickly sent out to our extensive database of owners and buyers. We also started to contact by phone the most likely prospects, which were identified due to our strong knowledge of the most active players in the market. Within a matter of days, we had generated significant interest in the property, allowing us to set up two tour dates for the following week. Through its entirety, the owner was able to observe the marketing process through the NAI Realtrac accountability web-based software. This gave the owner tremendous peace of mind that the many issues at hand were being handled and resolved prior to the looming deadline at the end of the month.
During the two week marketing period, we were able to create competition for the asset and generate five good offers from strong, qualified prospects. Using our strong negotiating skills, the property was put under contract with the highest bidder. The contract was settled at the asking price of $5,250,000, minus the deferred maintenance of $450,000, for a final price of $4,800,000. The out of state buyer flew in a team of people to conduct due diligence. The property was under contract for a total of 7 days and closed the day before the nursing operator was to exit the premises.
The end result was an ecstatic seller, who could not believe how much the property sold for, nor how quickly the valuation, marketing, negotiating, and closing processes went. The buyer was thrilled to be able to add to his existing Grand Rapids portfolio at a price that gave him the room to create additional value through property improvements and re-positioning.
“Craig Black and Scott Nurski recently completed the sale of a 114 unit apartment complex for our office. We were very impressed with their performance. To start with, the Offering Memorandum which they prepared was very professionally done. The sale was very complex and presented many challenges, but the two of them did an outstanding job on presenting the property and then negotiating a sale in a very short time and at a very favorable price. I would not hesitate to recommend them.”