Operations Update: August 2021
Property Rehabilitation: Our Rehab Teams Continue to Execute
Our home rehab teams in Columbus and Lexington continue their diligent work to get more of our properties up and ready for move-in.
Lexington operations are putting final touches on for more single-family houses this month, with another three or four expected in September. We’re in an unusually tight rental market due to, we believe, normal seasonality, longer-term pent-up demand and, perhaps, some sort of tailwind from folks not moving during COVID. We don’t know how long we’ll be in a tight rental market, as COVID seems to have changed normal patterns, but generally, lease ups are easier before winter sets in. We’ve tried to take advantage of this by focusing time and resources on completing projects so they can hit the market during this period of strength. Obviously, by focusing on “close to completion” projects, we divert resources away from “earlier stage” projects. Therefore, while we’re happy to report significant properties coming online currently, there will be a lull in the fall where we won’t be reporting projects being completed.
Columbus operations have pivoted towards earlier stage projects after completing 7** of the 8 units at Columbian, and will not have new properties coming online for the next few months.
Rent growth/lease ups continue to be extremely strong. Of properties “in service,” only one single-family property is available for rent. We do have a problem tenant in our newly-online 8-unit in Columbus, “Columbian.” Initial lease-ups are vital with a multifamily property that starts out rehabbed but vacant. Three of our four new tenants seem great. We are taking advantage of the strong rental market to replace our problem tenant.
No financings were finalized in July. Initial financing term sheet and appraisals on four single families have been completed. Last year, investors received significant depreciation losses – about $11,500 per $100,000 they invested. For our Series A investors, there is a good chance that write-off is quite a bit higher this year*. This financing package will be “non-recourse” in order to give our LPs basis so they can take depreciation deductions. “Non-recourse” loans aren’t standard in the smaller property space. For all our loans, we prefer a conservative structure over getting a rock bottom interest rate. For example, banks would prefer having a balloon payment at the end of a short term. Our view is that stable real estate almost always is a great investment in the long term unless you are a forced seller, and balloon payments can create that forcing mechanism. Never say never, but we have no balloon payments required in any of our mortgages. Therefore, with both “non-recourse” and our preference for conservative terms, these notes will be competitive, but not impressive, with an LTV of only 50%-60% and a 4% interest rate amortized over 25 years.
Our Series B subsidiaries closed on their second purchase of a duplex in the Franklinton neighborhood of Columbus.
*We believe our 32 unit “Georgetown” property should be fully “in service” this year. But we also believe in Murphy’s law! If it does, it would likely kick off ABC.
**While our crews are substantially finished, three of the Columbian units await inspections and staging.
For additional information on our properties and investments, feel free to reach out to our team at Nest Opportunity Fund today!