Analysis of Investments

El Paso Apartment Portfolio

ExchangeRight

This investment comes from ExchangeRight Real Estate and consists of two separate multifamily apartment complexes located in El Paso, Texas. The properties, Villa Sierra, built in 1969, and Wyndchase, built in 1970, consist of 393 total units.

Each property features amenities typical for multifamily properties of this era such as swimming pools, fitness centers, laundry facilities, BBQ areas, and a clubhouses. ExchangeRight intends to renovate approximately half the units at both properties in order to increase rents.  

Investment Highlights

  • Yr. 1 Cash-on-Cash 5.75%
  • Initial Occupancy 95.40%
  • Est. Time Horizon None YEARS
  • Current Cash Flow 5.95%
  • Yr. 1 Cap Rate to Investor 5.62%
  • Investor Purchase Price $25,130,650
  • Total Offering Size $12,230,000

Loan Information

The loan is non-recourse, has a term of 10-years, consists of interest only payments for the full term, and has fixed interest at 3.85%. Should the debt service coverage ratio drop below 1.15 the lender has the right to sweep all excess cash and apply it toward repayment of the loan.

  • Yr. 1 DSCR 2.57
  • Loan-to-Offering 51.33%
  • Hold Period DSCR 3.0

Tenant Information & Lease Terms

The properties both have typical lease terms for their tenants of at least 12 months. The onsite property managers do have the ability to negotiate this term. Additionally concessions are being offered and ExchangeRight expects these to continue going forward. These concession amount to approximately 2% off of the gross potential rent revenue combined for both properties.

Key Positives

  • The sponsor projections show a high level of debt coverage for the hold period.  The DSCR is 2.8 in the first year and 3.23 averaged for term of the investment. 

  • ExchangeRight underwrote this investment with an economic occupancy of 85% averaged for the 10-year hold. This may allow for a cushion at the properties to allow them to miss projections but still make cash flow.

  • The sponsor has non-aggressive year-1 assumptions for effective gross revenue, operating expenses, and net operating income compared to the trailing 12 months at the property.  Additionally they are growing their operating expenses at a higher rate than their effective gross revenue during the life of the investment.

  • The sponsor is using a master lease with a bonus rent feature that allows for investors to split profits that beat benchmark estimates 50/50 with the master tenant.  In additional the master lease allows for the trust to remain compliant in regards to re-leasing apartments, which is typical with this asset class.  

Key Risks to Consider

  • El Paso has a heavy reliance on the nearby Army Base of Ft. Bliss and has recently seen a decrease of migration to the market. Should the military decrease their presence in El Paso the properties could suffer along with the overall market.

  • The rents at the properties are near the high end of market rents. This could limit potential growth in the future above organic growth.

  • ExchangeRight plans to renovate 50% of the total units between the two properties, which may allow for increased rental revenue.

  • Any changes to the North American Free Trade Act may affect the El Paso market negatively. 

Investment Sponsor Information

ExchangeRight

According to the sponsor's website: "ExchangeRight Real Estate, founded in 2012, is a private real estate investment firm focused on the acquisition and management of single-tenant properties throughout the United States. With over $1.2 billion in assets under management diversified across 425 properties in 28 states, we focus on investment-grade, necessity-based retail and Class B/B+ value-added multifamily.

We believe that investors deserve an investment strategy that provides them with stable cash flow, capital preservation, and value-added return potential in the face of uncertain economic and financial conditions. We have implemented a strategy designed to directly address this so that we can preserve our investors' capital and provide attractive income on their capital until the timing is right to execute a strategic exit to maximize their returns."

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