- CASE STUDY -
EXCHANGE & ELEVATE
Redeployment of equity for greater returns
CASE STUDY
EXCHANGE
& ELEVATE
Redeployment of equity for greater returns.
The Details
LOCATION
Louisville, KY
UNIT COUNT
136
year built
1973
year RENOVATED
2013
Our client owned a 136-unit, 1970’s apartment community in Louisville, KY for 15 years. It was operating well, but not producing an optimal return. For over two decades, the client’s overall goal with building their portfolio was to grow their cash flow and build a diverse portfolio of assets in thriving submarkets. During the last several years of their ownership, recurring capital expenditure (“CapEx”) needs continued to routinely diminish their annual distributions.
Efficient redeployment of equity for continued tax deferment and significant improvement of cash return on equity, asset quality, and market quality
The Situation
MMG was retained by the client to evaluate the asset and we determined their cash return on net equity was – 2% after accounting for a market level valuation and payment of all costs including the retiring of the debt, prepayment, and all costs associated with sale.
We then built a strategy for the client that allowed for significant improvement of their cash return on equity. It also allowed for continued tax deferment via 1031 exchange and ultimately, to move their equity into a newer asset with less capital needs in a thriving market.
The Strategy
We took the client’s asset to market under a customized, strategic approach targeting investors from across the macro marketplace as prospective bidders for the workforce, value-add opportunity. Over a 30-day period, our team successfully generated 21 offers on the client’s behalf, which pushed pricing above strike.
Given the client’s need to continue to defer tax, MMG also negotiated a seller extension to the Purchase and Sale Agreement (PSA) with the buyer to allow for additional time for the client to identify their 1031 “upleg” property.
During the marketing process, we also identified and targeted specific assets for the client to acquire with limited, if any, capital needs and in Sunbelt markets with greater growth prospects than those of the client’s “downleg” property.
MMG developed a carefully-crafted strategy with the client’s goals at the forefront as the singular focus.
3x Increase To
Return On Equity
The Outcome
Our company helped the client to identify a well located, post-rehab asset in Birmingham, AL. Located in a tremendous trade corridor with an exceptional growth trajectory, virtually no deferred capital needs, and superior demographics to the “downleg” property. At the same time, we helped the client to identify a low-leverage, fixed-rate financing product on a full-term interest-only basis that kept the client’s risk profile intact and created a 3x increase to their current cash return. By taking a customized, advisory-focused approach, we were able to effectively help the client to achieve their stated goals.
