THE PROPERTY
The Keystone Apartments are a 202-unit garden-style multifamily complex in Fayetteville, NC. Built in 1974, the property comprises 24 buildings on a secluded 19-acre lot conveniently located adjacent to the Skibo Road Corridor. Less than 6 miles from Fort Bragg, an Amazon fulfillment center, and the Cape Fear Valley Hospital, the property is within close proximity to several of the area’s major employers. The apartments offer 1- and 2-bedroom units with upgraded interiors and a generous list of amenities.
THE CHALLENGE
The owners purchased the Keystone Apartments in January of 2021. They took over the complex with an 83% occupancy rate and 35 completely gutted units.
To boost occupancy numbers before the sale, the previous owners placed poorly qualified tenants and awarded several with excessive concessions. Also, multiple leases covered vacant units or did not match the current occupants.
The property was in disrepair, with entire buildings needing extensive renovations. While the physical condition was one of the selling points for the new owners – it did not lend to ease of management.
During the due diligence period, the investors identified the need for professional property management to handle day-to-day operations and the rehab process. The soon-to-be owners began an exhaustive search for a company that could handle such a complex property.
The buyers were referred to Sweetwater Property Management (SWPM), and after consulting with the SWPM team, the new owners retained the company’s services to get the complex back on track.
The Sweetwater Property Management team faced several issues:
– inaccurate rent rolls
– leases that did not match current tenants
– limited financial and tenant records
– lease terms that included excessive concessions
– an eviction moratorium due to COVID-19
– high vacancy rate
– below market rents
– poor curb appeal
– dated and out-of-service amenities
– major renovations required – 35 gutted units
– a backlog of over 150 work orders
– a large number of mismatched renovation supplies
– units without operational HVAC systems
– pre-lease agreements for units in need of significant renovations
– extensive plumbing issues
THE GOAL
Resolve rent record discrepancies, establish and maintain accurate record keeping, lease-up vacant units, manage renovations, increase rents, increase other revenues, properly screen tenants, increase property value, rebrand the property, and improve tenant relations.
THE SOLUTION
The Sweetwater Property Management team initiated several simultaneous actions when they took over the Keystone Apartments.
The priority was thoroughly inspecting every unit and contacting each tenant directly. By having staff go door-to-door, SWPM was able to assess each unit’s condition, collect tenant information, verify lease data, and begin the process of improving client relations. During this initial period, the property was rebranded as the Keystone Apartments.
With the assessment completed, work orders were prioritized, and clearing out the backlog began. The SWPM team used internal assets and leveraged their pool of highly qualified contractors to begin addressing work orders. During this period, management also worked with the owners, multiple contractors, and vendors to develop and initiate the renovations of the 35 down units.
With tenant data collected, leases verified, rebranding complete, and work orders and renovations in process, the Sweetwater team began addressing issues with amenities, including the poorly maintained laundry facilities and a pool that had been out of service for four years. A contract was established with a local laundry facility to ensure services were available while work was conducted at the onsite facility. Work on the pool was expedited to ensure it was available for the summer swim season.
With operations improving and renovations ongoing, the team began to focus on resolving tenant arrears. Plans were offered to tenants that would allow them to catch up on back rent. A cash-for-keys program was also implemented to give tenants and the owners options other than the eviction process. In a limited number of cases, eviction proceedings were begun, which the SWPM team handled professionally and efficiently.
When Sweetwater Property Management took over the Keystone Apartments, average rents were between $545 and $600; one year later, rents were between $785 and $900. Over the same period, SWPM raised other income by more than 100% by increasing existing fees to market rates and introducing new fees.
Tenant arrears were resolved within six months, and within eight months of the takeover, the property was fully stabilized, and $888,000 in CAPEX and renovations were completed.
The improvements to the Keystone Apartments did not go unnoticed by the community. Sweetwater Property Management won the 2021 Most Improved Community of the Year award from the Greater Fayetteville Apartment Association.
Within the first year of operations, SWPM increased Net Operating Income (NOI) by 49%, and when assessed at a 5% capitalization rate, the Keystone Apartments value increased by $7.5MM. Thanks to the speed and efficiency of the Sweetwater Property Management team, the owners could exit the property after only 15 months instead of the planned three to five years.
SUMMARY
The Sweetwater Property Management team went above and beyond the property owner’s expectations and demonstrated how they could yield significant profits even when faced with substantial challenges. Under the care of SWPM, the Keystone Apartments increased Net Operating Income by 49% and value by $7.5MM.
When the Keystone Apartments were purchased, the owners planned to hold for three to five years before exiting. Thanks to the expertise, professional services, and diligent work provided by Sweetwater Property Management, the owners were able to exit the property after 15 months – capitalizing on market conditions they were able to gross $8.9MM on the sale.
The value of the Keystone Apartments increased by $7,524,513 under Sweetwater Property Management a 97% increase within the first year of operations.
