In a volatile transaction market, creativity goes a long way.
Dallas-based The Milestone Group proved that when using a discretionary value-add fund to secure three properties totaling 870 units in Fairfax, Virginia, by assuming the sellers’ existing financing.
By doing that, Milestone not only locked in an interest rate that was roughly 100 basis points below market, but it also saved the New York City-based sellers — Hampshire Properties and Rose Valley Capital — more than $20 million in prepayment costs.
“It took some time to go from start to finish, and not having that volatility of where the Treasury was going to fall certainly was helpful,” Milestone Vice President for Acquisitions Jason Wise told Multifamily Dive. “On top of that, it really allowed us to get comfortable with where we can take the asset and get it in a positive leverage position relatively quickly.”
The properties Milestone bought include:
- The Ellipse at Fairfax Corner, a 404-unit garden-style community built in 1989.
- Windsor at Fair Lakes, a 250-unit garden-style community built in 1988.
- The Townes at Herndon Center, a 216-unit townhome community built in 2002.
Milestone was attracted to the three properties because of their location. They sit in submarkets where garden-style properties are no longer being built as developers focus on high rises. Additionally, the Washington metro area, with its federal employment engine, has proved to be resilient in past downturns.
“We view it as a good hedge in a time of uncertainty,” Wise said. “There will always be demand for housing in this market and the demographics are great. Jobs continue to flood the Northern Virginia market.”
Upgrade possibilities
The Ellipse at Fairfax Corner includes one- and two-bedroom apartments and a fitness center, pool, business center and tennis courts. Windsor at Fair Lakes in Chantilly provides one-, two- and three-bedroom floor plans and includes a resort-style pool, fitness facility, dog park and convenient access to a bike trail. The Townes at Herndon Center features two- and three-bedroom open floor plan townhome apartments and includes a pool and fitness center as well as one- and two-car attached garages for each unit.
Milestone plans to make capital and operating improvements at the three properties, allowing it to squeeze more value out of the assets.
“All of the assets have been well maintained, but there is certainly an opportunity to go in and try to provide, at least for garden-style product, best-in-class amenities and best-in-class unit interiors at a somewhat affordable price point, especially relative to the new high-rise construction nearby,” Wise said.
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