Wolverine Apartments is a well-maintained set of two brick buildings, consisting of nine apartments in a quiet residential setting. The front building is former house converted into a three-unit building. The rear building is a traditional apartment building with six units. The unit mix is made up of four one-bedroom units (550 ft.²), and five two-bedroom units (825 ft.²). Wolverine Apartments was built in 1940 for the house and 1961 for the apartments with a poured concrete and block foundation. Recent capital improvements include: a new parking lot, new insulation in both buildings, a new roof on the back half of the house, a high efficiency forced-air furnace and hot-water tank in the front building, a high efficiency boiler, new vinyl windows and glass-block windows in the rear building. All recent apartment turns are freshly painted with new flooring. The HVAC is outfitted with Landlord-paid gas, hot water baseboard heat and water; and separately-metered, tenant-paid electricity. Amenities include private patios.
Wolverine Apartments is performing at a high level of operations with physical occupancy at 100% and bad-debt levels at less than 1%. However, even in light of this stellar level of performance upside still remains for a multifamily investor. Based on our carefully conducted rent comparable study, it was determined rents are considerably below market when analyzed under both the price per square foot and Street Rent metrics. Our study found that one-bedroom units are a staggering $111 below market average Street Rents and two-bedrooms are approximately $96 below market. Such a delta between existing and market rents provides a new owner with the unique opportunity to greatly improve this asset’s cash-flow position without making any financial investment in the property. For example, if a new owner were to increase average rents on one and two-bedroom units by a mere $75 per month it would increase this asset’s value by over $114K.
From an underwriting standpoint, our Pro Forma is based on actual 2018 & 2017 Operating Expenses, and we have also included a professional management fee, a Replacement for Reserve and adjusted taxes to the SEV. Significant turnover occurred in 2017 and thus did not represent a stabilized year of operations. We have projected income and expenses based on present occupancy and stable expenses. Income was projected with the use of market rents, which does not factor in the previously mentioned “upside” of a rental rate increase. We have also included a vacancy and bad debt factor that is consistent with current property trends. Wolverine Apartments is being offered to the market as new debt opportunity. Based on the asking price of $449K the Wolverine Apartments offering represents an attractive 7.04% cap rate on Pro Forma NOI of $31,675.