In 2021 and early 2022, investors bid up value-add properties in Texas as people moved to the Lone Star State.
But interest rate increases have thrown cold water on the once-scorching market, denting property values and bringing sales to a screeching halt.
The turbulence created an opportunity for SPI Advisory and its 1031 exchange partners. In early May, the Dallas-based owner secured The Bradford, a 264-unit in the Austin suburb of Buda, Texas, for less than it would have paid a year ago.
“This was a pretty good discount to where pricing would have been 12 months earlier with interest rates still up and dislocation in the market,” Michael Becker, the co-founder and principal of SPI Advisory, told Multifamily Dive. “This is a relative discount to some of the sales that happened at the beginning of 2022.“
With the purchase of The Bradford, SPI Advisory has grown a large footprint in Hays County with 1,100 units owned and operated between the towns of Buda and Kyle. It primarily focuses on the Dallas, Austin and San Antonio metro areas.
“We were already the largest landlord in the submarket,” Becker said. “So this was an opportunity to expand the holdings in our backyard and in a market that we really liked.”
Finding efficiencies
By gaining scale in the market, Becker said SPI could capture efficiencies with service providers who have less travel time between properties and even get by with one or two fewer employees in a metro area. Having multiple properties in one area also gives it valuable market intelligence.
“Being in the submarket, we understand the renter demographic, what they want and where pricing is,” Becker said.
SPI Advisory sees The Bradford, built in 2010, as a prime value-add target. The property’s previous ownership upgraded a handful of its existing units with premium finishes, appliances and more contemporary design elements. The buyer will continue to upgrade a handful of apartments each month. However, it intends to leave 50% of the property with affordably priced “classic” units to serve a broader range of prospective tenants long term.
“There is quite a bit of opportunity to improve the physical condition and to improve the financial returns of the asset over the next handful of years by spending some capital and improving some of the operational efficiencies that we'll be able to implement by being in the submarket with the scale that we have,” Becker said.
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