Different sellers have various reasons for putting apartment properties on the market, even in an environment where it’s harder for borrowers to secure financing.
For the owner of Bentree Apartments in Florence, South Carolina, the motivation was personal, including the expiration of tax benefits.
“The seller was a mom-and-pop owner,” said Tom Carroll, founder and CEO of Ballast Rock. “They had been the owners since it was built — it is a 1980s property. And they had run out of depreciation. In these mom-and-pop circumstances, it's often life events driving decisions.”
Charleston, South Carolina-based owner Ballast Rock secured the property in September. But even after that, things weren’t totally finalized. The shifting financing environment caused the company to do something it normally avoids — asking for a discount after going under contract.
“There was so much rate volatility during that time horizon that we were able to negotiate a fairly significant change in pricing during the process,” Carroll said. “ We asked for a 10% price decline and we were able to get a 5% price decline. It's not something we generally like to do, but we have done that on the last two deals that we negotiated because of the rate volatility.”
Eventually, Ballast Rock’s Sunbelt Multifamily Fund II completed its final acquisition by buying the 132-unit Bentree Apartments for $10.5 million. “At the end of the day, that cost of borrowing is driving the true value of property,” Carroll said. “And so we were able to use that as a tool to get a really great execution for our investors.”
The previous owner had completed light renovations, including new cabinets and countertops, on roughly one-third of the units.
Ballast Rock plans to make exterior and interior renovations, in an effort to capture an average rental premium of more than $250 per month at the time of underwriting. Those upgrades will include new cabinet boxes and fronts, vertical cabinet hardware, tile backsplashes, vinyl and carpet flooring, black appliances and bathroom hardware.
Bentree Apartments sits approximately 10 minutes away from McLeod Medical Center, the largest employer in Florence and a five-minute drive from the I-20 and I-95 interchange. It is also a five- to 10-minute drive away from two other Ballast Rock properties — Landmark Woods and Basswood Apartments — giving the company economies of scale.
“You've got net positive migration to the Southeast, primarily from the Northeast, and to a lesser extent from the Midwest,” Carroll said.
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