We’ve invested approximately $5.1 million in the renovation of the Verse at Royal Palm Beach apartments, a 200-unit apartment community in the town of the same name. Royal Palm Beach is a quiet village located inland from its better-known neighbor, West Palm Beach, at the northern end of the South Florida region.
This project is the latest execution of our affordably-priced suburban apartment strategy, where we invest in older communities below replacement cost (i.e. below the cost to construct a building of similar quality) and perform renovations aimed at increasing income and property value.
Business plan
As of December 10, 2018, the property was roughly 94% occupied. Our partner, American Landmark Apartments, plans to renovate the community amenities as well as the individual units incrementally as they “turn over”. Unit renovations are expected to include upgraded appliances, flooring, and kitchen finishes. Around the property, improvements are slated for the leasing center, gym, and pool area.
Following the completion of renovations, our partner aims to reduce ongoing costs by managing the apartment community in-house. We expect that they will pay back our investment via sale or refinance in roughly five years.
Why we invested
- Strong relationship with experienced partner: American Landmark Apartments (ALA) currently owns and operates over 23,000 units with a diverse real estate portfolio valued in excess of $2 billion. Prior to this acquisition, we have invested in seven other value-add projects with ALA, including The Enclave at Lake Ellenor in Orlando, which experienced a 39% appreciation in appraised value in just 21 months.
- Attractive margin of safety: Our investment, along with the senior loan, makes up roughly 76% of the value of the property. Since our position is senior to the sponsor, their equity provides a cushion against potential loss.
- Income-producing asset: The property is near full occupancy, generating consistent cash flow through rental income. By renovating the units incrementally as they turn over, we can maintain this cash flow even as we do work to add value to the property.
