The Granite at Porpoise Bay

  • Year Built: 2001
  • Total Units: 204
  • Class: B Acquisition
  • Cost: $11.0 million
  • Renovation: $300,000

Opportunity:

Acting as the acquisition advisor and management agent, Lloyd Jones Capital (“LJC”) led the purchase of this asset from a national multifamily REIT in 2012. This Florida property suffered from a moderate case of the ugly ducking syndrome. Its excellent location was (and still is) close to major employment centers, retail necessities, and transportation nodes. The physical condition of the asset was good with very few deferred maintenance issues. Under previous REIT ownership, however, the property was underperforming. With occupancy in the low 90s, the property faced wild swings in turnover due to a gyrating tenant mix of both students and young professionals. Additionally, the common amenities were substandard compared to those of competitors in the submarket.

Execution:

Armed with an excellent location, the property was positioned to push rents, which at takeover were determined to be trailing the competitor set. A comparable amenity package, which in central Florida centers around the pool, clubhouse, and exercise center, is what was missing from the equation. Plans were quickly drawn and contractors engaged to uplift the clubhouse complex, but this transition wouldn’t happen overnight. It would be about six months before the clubhouse makeover would have a positive financial impact on the project.

Finlay Management Inc. (FMI, property management agent and sister company of LJC) determined that shifting the tenant strategy of the property could not wait for the amenity upgrade. Analysis of the cost drivers on the asset revealed that the turnover both in process and frequency was a key problem. FMI implemented a targeted marketing strategy to move the tenant mix more towards the young professional segment and reengineered the internal workflow and quality control within the turn process.

Result:

During the first twelve months after takeover, operating expenses were reduced by over 10% due largely to a more efficient and less frequent turnover process. Effective income increased similarly as occupancy trended well above 95%. The amenity upgrade delivered the final piece of the puzzle and asking rents were pushed upwards. The annual cash-on-cash return to invested equity increased almost 90% and currently stands at 14%. The projected five-year hold shows a compounded annual return of 20% and a 2.55X equity multiple upon exit.