Mid Month - March 2018

In addition to continuing to look for investment opportunities, a large amount of time this past month has been spent analyzing the financials of our existing properties to get a better understanding of property performance. Recently some property performance within the portfolio has been lackluster. We are extremely displeased with the level and quality of work being provided by one of our management companies and are taking steps to ensure all parties are clear about the performance expectations. We believe there is a high likelihood that we will have to find a replacement management company for some properties in the portfolio, but we have to go through the proper process to replace them as required by the various agreements. There is certainly nothing “passive” about being principals in “passive” real estate investments.

In the Pipeline:

• We have had a couple meetings with a well-respected builder in Sonoma County to discuss the possibility of a joint venture as part of the fire rebuild efforts. While this would not be a cash flow investment such as what we normally focus on, the underwriting is solid and the team is strong. We are optimistic about the opportunity and assuming we move forward there will be availability to invest in the venture. We will know more within a couple weeks.
• Our overall deal flow has been slow for the past nine months. Most markets are very tight and economic conditions have led us to tighten our underwriting criteria. None-the-less, we continue to turn over rocks to find the hidden opportunities.
• One such opportunity is a large off-market commercial/retail portfolio that was presented to us by two brokers we trust and enjoy working with. We have been negotiating with the seller for close to two months. There is a desire on his part to sell, and a desire on our part to buy, but with it being such a large and varied portfolio there are lots of details to work through. And there is always the issue of price. We are cautiously optimistic about the prospect of this deal. 
• We are currently looking for reinvestment opportunities for $4.5 Million of 1031 Exchange equity. Using 1031s can be a great way to defer capital gains taxes and benefit from returns on a large capital base. In most cases Altus is able to fill investors 1031 needs while allowing the investor to take a passive role in the identification, purchase, financing, and asset management process.

Current Repositioning Projects:

Norman Portfolio
(340 units, Norman OK)

• Charleston (160 units) – The exterior of this property has dramatically changed in the last two months. With the exterior work 80% complete and the new signage installed, leasing traffic has increased dramatically. In the first week in March we had 10 leases. On a run rate basis across an entire month, and including the other 180 units in the portfolio, it would have calculated as our best month of leasing ever. While we don’t expect to continue with that level of leasing throughout the rest of the month (March is just the beginning of the “leasing season”), we are greatly encouraged by the momentum.
• Other Complexes (180 units) – Exterior paint is complete at all properties along with landscaping and signage. Windows will be installed in each smaller complex as they are delivered.

Village on the Lake
(160 units, Oklahoma City)

• Occupancy is at 46%, a 4% decrease from last month due to the remaining original residents moving out. We continue to have a steady stream or traffic and with leasing season around the corner we are focusing on completing interior upgrades in expectation of increasing leasing traffic.
• Construction is over 65% complete for interior units, they continue to turn units over weekly and are schedule to be 100% complete by the beginning of May.

Magnolia Apartments
(40 units, Redding CA)

• Interior renovations are now complete on 3 units; one studio and two 1-bedroom units. The studio leased at $550/month, $55/mo higher than our proforma rent rate. We are hopeful the 1-bedrooms exceed proforma as well.

Items of Note at our Stabilized Properties:

AE Sunset
(98 units, Edmond OK)

• Occupied at 92%, leased at 93%.
• The refinance process through Freddie Mac has commenced and should be complete in May. Due to changes in the interest rate environment we were not able to obtain as large of a cash out refinance as we originally expected but were still able to lock in a great 10 year fixed interest rate. 

AE Rockwell
(304 units, Oklahoma City)

• Currently 92% occupied and leased.
• We are disappointed in the performance at Rockwell, this property is frequently called the nicest 80’s product in NW Oklahoma City and yet we are hovering right around 92% occupancy which is only the market average. This is a focus of our work with the property management company.

Cedar Hills
(124 units, Del City OK)

• Currently 98% occupied and leased.

AE Commerce
(20,000 SF Commercial Space, Rohnert Park)

• This property remains on the market for sale.

AE Carousel
(98,000 SF Light Industrial, Redding CA)

• We are in the process of negotiating an extension with FedEx, one of the tenants in the building. 

Villaggio (Altus Multi Tenant Income Fund)
(33 Units, Sacramento CA)

• We have received an offer on these 33 condo units and expect to receive a second one this afternoon. The expected price is a 64% increase on the purchase price in a little under four years, equating to roughly a 233% gain on the original investment (not including loan amortization).

Other:

• We are starting to be approached by contractors regarding construction financing for the rebuilds of fire lots they have purchased here in Sonoma County. In response we have put together an outline of what our construction lending product will look like. We are hopeful we will have an increase of loans to offer to our investor base. 

If you have any interest in discussing any of the above opportunities in greater detail, please reply to this email or call our office at (707) 932-5887.  We will gladly add you to our distribution list and/or schedule an appointment to discuss your investing needs further.

Best,

Ali Negus