Analysis of Investments

District Lofts

PASSCO

The offering is a multifamily complex in Jackson, Mississippi. It’s a mixed-use complex with restaurant and retail tenants on the ground; the housing portion that the trust owns, which offers 261-units, is on floors 3 to 6 of the complex. The residential building has great amenities: swimming pool, outdoor fireplace, grilling area, an activities courtyard, a community room, and an exercise/fitness room.  

This complex is a part of a unique one-stop project which offers access to office, dining, retail, and lodging.

Investment Highlights

  • Yr. 1 Cash-on-Cash 5.20%
  • Initial Occupancy 98.08%
  • Est. Time Horizon None YEARS
  • Current Cash Flow
  • Yr. 1 Cap Rate to Investor 5.18%
  • Investor Purchase Price $63,816,000
  • Total Offering Size $33,250,000

Loan Information

The loan has five-years interest-only of a ten-year term on a 30-year amortization schedule, with an end of term ballon payment. (*The loan is yet to be finalized, and is pending Fannie Mae's approval of the terms.) The trust has locked in a rate agreement of 4.39%. Prepayment will be subject to a penalty of yield maintenance fee during the first 9-years and 6-months of the term, the following three months a 1% principal prepayment penalty, and no penalty if prepaid in the final three months. A cash sweep provision is expected to be in the final loan docs.

  • Yr. 1 DSCR 2.4
  • Loan-to-Offering 47.90%
  • Hold Period DSCR 2.25

Tenant Information & Lease Terms

Residential tenants are typically set to 12-month terms.

Key Positives

  • This new development’s proximity to the District of Eastover is marketable to local millennials.

  • Less capital will be required for up-keep in this new building.

  • Financing has a low loan-to-value ratio.

  • The Sponsor has used conservative underwriting.

  • The Sponsor has set more in reserves than projected requirements. 

Key Risks to Consider

  • The rent prices are above market rents.

  • The projection of rent growth at 2.5% may be overly optimistic.

  • Rent growth will depend mainly on organic growth.

  • The population projection is expected to decline in the surrounding area. Many of the demand drivers are outside of the city.

  • A portion of the building is susceptible to encroachment disputes, which could negatively affect property operations and cash flow.

  • The loan has not been finalized. 

  • The property is yet to be acquired by the trust; this could compromise investors timing a 1031 exchange.

  • The Eastover Association and Condo might request that improvements are made to the property, creating unknown future expenditure that could adversely affect cash flow.

  • The analysis is incomplete.

  • The trust will only own floors three to six, which might limit the ability to make future improvements.

Investment Sponsor Information

PASSCO

According to the sponsor's website: "Since 1998, Passco Companies, LLC has operated throughout all market conditions and cycles. The company has acquired over $4 billion in multifamily and commercial real estate in the United States. Since its inception, Passco Companies has become a recognized provider of investment opportunities in real estate projects.

Passco Companies is directed by a team of dedicated senior real estate professionals whose experience in the business averages 34 years, and who, collectively, have acquired over $30 billion in investment real estate projects."

  PAST Investments