- Birmingham’s Solid Multifamily Fundamentals
- Value-Add Opportunity, Including Day-One Upside
- Effective, Affordable Management Team Willing to Remain
- Large Units
- Proven Resident Placement Program by Local Nonprofit
Birmingham’s Solid Multifamily Fundamentals
The metro area boasts a low unemployment rate of 2.7% as of June 2024, indicative of its economic stability, which is bolstered by significant government employment. The city’s tech sector has seen exponential growth, attracting both startups and established companies. Notably, in June 2024, CModel Data announced its decision to relocate its headquarters from San Francisco to Birmingham. This move is expected to generate over 80 high-paying tech jobs.
Central to Birmingham’s economic vitality are its educational institutions, including the University of Alabama at Birmingham (about nine minutes from the portfolio) and Samford University (about 15 minutes from the portfolio). This academic influence seamlessly integrates with the business landscape, where major corporations such as Vulcan Materials Company (about seven minutes from the portfolio) and Encompass Health (about 15 minutes from the portfolio) are key players, contributing to a diverse and robust economy.
Despite a modest 0.2% annual increase in rents across the broader Birmingham multifamily market, workforce housing properties are demonstrating notably stronger performance. Rents in this segment rose by 4.1% over the year ending in June 2024, demonstrating resilience to the pressures of new supply that have affected the higher-end market segments.
Highland Park Townhomes is strategically positioned along a clear path of redevelopment, with revitalization efforts extending toward all the assets. This trajectory offers investors a unique opportunity for substantial long-term returns, particularly with a long-term hold strategy that aligns perfectly with Opportunity Zone requirements. As the area continues to develop, property values are poised to appreciate significantly, allowing investors to capitalize on both the immediate benefits of the Opportunity Zone tax incentives and the long-term value created through the surrounding redevelopment. This combination makes the portfolio an ideal fit for investors with a focus on sustained growth and wealth building over time.
Value-Add Opportunity, Including Day-One Upside
Highland Park offers a proven interior renovation strategy that has already yielded impressive results. 32 units have been renovated with high-end upgrades, and by continuing this approach across the remaining units, new ownership can raise effective rents to the proven average of $959. This represents a $152 or 18.8% increase over the current effective rent of $807. Completing the renovations will not only enhance the property’s appeal but also increase its value and income potential.
There is also room for significant improvement in utility reimbursements at Highland Park. Over the last 12 months, the property has collected just $9,700 in reimbursements. By introducing a consistent flat rate of $50 for two-bedroom units and $60 for three-bedroom units, new ownership can generate an additional $23,355 in revenue, further driving top-line growth.
Effective, Affordable Management Team Willing to Remain
The current management’s proactive approach has been a key driver of the portfolio’s success, delivering long-term value and stability. Their strategic transformation of the tenant base, removing over 150 problematic tenants, has significantly improved property performance and cash flow consistency. Their commitment to property upkeep and the effective execution of capital improvements further ensures that the assets remain competitive, attractive to tenants, and positioned for sustained performance.
These efforts by management not only improve the properties’ immediate financial returns but also reduce the risks for new ownership. The solid foundation laid by current management ensures smoother operations, enabling future owners to focus on further optimizing the portfolio rather than having to solve pre-existing issues.
By retaining the current management team, investors can benefit from a favorable 7% management fee even on lower-unit-count assets, while avoiding the additional burden of payroll expenses and much of the contracted labor costs. The management company employs its own skilled tradesmen and reliable maintenance staff, reducing the need for outside contractors and streamlining operational costs. This structure allows for greater control over expenses and enhances overall profitability, making the portfolio an attractive option for investors seeking operational efficiency.
