In the current elevated interest rate environment, buying opportunities are emerging in select markets. However, it takes a skilled and disciplined acquisition strategy with true value-add upside to achieve cash flow and appreciation in the years ahead. This is undoubtedly a time to partner with proven sponsors like RealSource Properties that meet these critical standards built into their long-term strategy.
Getting Started in Value-Add Investments
In 2011, RealSource Properties saw an opportunity as a wave of foreclosed multifamily assets were mismanaged and neglected. With many apartment communities suffering from poor maintenance and unresponsive management, the company stepped in to address the urgent need for revitalized living spaces, exceptional customer service, and proactive upkeep.
Pool and sundeck upgrades at Steepleway Downs in Houston, TX
Since 2012, RealSource Properties has consistently delivered strong investor returns by leveraging econometric models to identify value-add opportunities in promising MSAs. Potential projects are carefully analyzed and selected based on their potential for strong returns. Following acquisition, renovations are executed on apartment communities, utilizing economies of scale to maximize ROI and reposition thousands of units in strategically selected cities.
RealSource Properties brings an experienced, multifamily-focused construction management team to project estimates, source materials, and manage subcontractors. They coordinate with onsite teams to renovate properties seamlessly for cost-efficient results.
Our Keys to Success
RealSource Properties has achieved success in its value-add projects by consistently leveraging the expertise and approach it has developed over the years, including:
- Prudent risk management guiding debt structuring and critical investment decisions.
- Long-established broker relationships to source and filter local insight and deals.
- Attentive asset management with comprehensive analytical tools and software.
- An experienced construction management team that is involved from the beginning of due diligence.
- Ability to execute the investment plan from acquisition to repositioning and disposition with the trained mindset of an owner.
Identifying the Right Renovations
Value-add projects, driven by strategic property improvements, can significantly boost NOI by enhancing asset performance and increasing resident satisfaction. Upgrades like durable countertops and flooring reduce turnover costs. They also attract better, longer-staying residents, further improving efficiency and profitability.
Kitchen upgrades at Timber Hollow in Fairfield, OH
Nevertheless, achieving favorable results in value-add acquisitions involves more than simply raising renovation budgets to boost returns. The key is accurately assessing submarket demand and understanding what renters are willing to pay for a renovated unit, which sets top players apart in a competitive market.
The current landscape of elevated labor and material costs, coupled with lower housing affordability, has made finding and securing successful value-add opportunities far more complex than just five years ago. Additionally, changes in commercial mortgage terms have tightened returns.
Lower loan-to-value ratios and higher interest rates have created additional complexity. However, value-add projects still offer the potential to significantly increase NOI, while also reducing risk, especially when backed by a proven sponsor like RealSource Properties.
Underwriting and Econometrics
RealSource Properties’ in-house underwriting model is designed to precisely account for the timing of each unit's renovation pace, providing a detailed cost breakdown that includes adjustments based on square footage. The model also provides insights on full vs. partial vs. classic interior finishes on the subject and rent comps. This allows the company to gauge the strength of demand for renovated units and identify the optimal level of renovation that the market indicates could provide the best potential ROI.
Another distinctive feature of the RealSource Properties underwriting model is its ability to assess how far each lease is below the current market rate. In some cases, properties are identified where over 20% of the leases are more than 20% below the rates of neighboring communities. During due diligence, it is often found that renters are willing to pay a premium for a better apartment with fewer maintenance issues and updated interior finishes.
Elevated amenity experience at The Mill at Georgetown in Lexington, KY
RealSource Properties uses sophisticated econometric models to analyze economic indicators, market trends, and property specifics, helping forecast market conditions, assess risk, and identify value-add opportunities. These specially tailored indicators pinpoint areas with a shortage of quality rentals by tracking occupancy, rental rate deltas, and affordability indexes between B- and A-class units.
These locations offer significant economic growth and affordable rents, especially in growing secondary MSAs. Despite headlines about new supply, much of it is concentrated in about a dozen metros. This leaves room for accretive value-add projects in other areas.
Uncovering New Opportunities
In today’s environment of compressed returns driven by higher interest rates, lower loan-to-value ratios, and rising expenses, partnering with a proven sponsor for true value-add projects is crucial for maximizing returns and protecting against downside risks.
As a seasoned and data-driven sponsor adept at navigating challenging markets, the company is actively identifying areas where its value-add strategies can make the most significant impact. Investors are invited to explore how to unlock the full potential of multifamily value-add opportunities with RealSource Properties.
Real Estate Risk Disclosure
• There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
• Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
• Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
• Potential for foreclosure – All financed real estate investments have potential for foreclosure;
• Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
• Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
• Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
• Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.
For more information on Emerson Equity, please visit FINRA’s BrokerCheck website. You can also download a copy of Emerson Equity’s Customer Relationship Summary to learn more about their role and services.
Important Disclosure
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 issuer, or any affiliate, or partner thereof ("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 any “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. All investments carry the risk of loss of some or all of the principal invested. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM for the respective offering. 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. All offerings are intended only for accredited investors unless otherwise specified. Past performance is 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 Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.
Securities through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.
