The first step is to perform research and identify markets and submarkets with favorable demographic and economic growth. Next, we must build relationships in order to source quality deals and measure them against our strict acquisition criteria. We prescreen the property to ensure it meets certain basic requirements.
Underwriting utilizes our proprietary financial models and requires modeling deal and market assumptions. Assumptions are bolstered by rental and sales comparables, property management pro formas, and general contractor bids. The subjective risks of the investment must be weighed against the prospective returns derived from underwriting.
Our goal at this stage is to uncover all of the material risks that could impact the returns of the investment. Asset ownership history is evaluated, including the trailing three years of operating statements. We perform a physical inspection, lease audit, and interview the on-site property staff. Our general contractors assess the condition of the property and identify deferred maintenance as well as price potential capex projects.
Once under contract, in conjunction with due diligence, we must finalize our debt terms with our chosen lender and raise equity. Our attorneys work with the lender’s attorneys to create legal documents. The lender orders third party reports (PCA, ESA, appraisal). Once we finalize our business plan, we engage our equity partners to fund LP, GP, and/or preferred equity.
Upon takeover, new managerial initiatives bring immediate operational improvements and renovations begin. Occupancy and rent increases are carefully balanced throughout the repositioning process. Site visits are performed to ensure the on-site team is exceeding expectations. Capital improvements from the management team are considered and implemented in an effort to enhance the resident experience while focusing on driving NOI.
Our Disposition strategy is to sell when favorable market conditions align with our desired tax-advantaged holding period. The best way to evade a permanent loss of capital is to hold cash flowing assets and sell in times of liquidity. Flexible capital structures allow us to avoid selling out in a depressed market. Our investors appreciate our focus on tax implications and look forward to participating in 1031 exchanges to preserve their wealth.
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