The Ridgeview Report
Property Spotlight - Riverway Apartments
Riverway comprises of two properties, each with twelve units, located in Champlin, MN. The properties contain a total of twenty-two 2-bedroom units and two 1-bedroom units. These properties were purchased simultaneously under one entity and are managed as a single property. 810 West River Rd. was built in 1967, while 101 Dayton Rd. was built in 1964. Both properties have undergone several upgrades, including updates to their windows, roofs, and boilers as well as the installation of underground sprinkler systems.
Situated in Hennepin County, Champlin is a city with a population of 25,136, experiencing an increase of 8.87% growth since 2010. The city's proximity to the Mississippi River provides residents with the advantage of picturesque views, fishing, and water sports. The tenants of 810 W River Rd and 101 Dayton Rd can conveniently access the Mississippi shores by foot, and reach the vast 4,900-acre Elm Creek Park Reserve within a quick five-minute drive. Champlin is known for its excellent schools, well-maintained parks, and abundant employment opportunities.
How I Found the Riverway Apartments
Initially, Riverway was marketed as part of a larger 115-unit portfolio that consisted of 10 apartment buildings, 8 of which were in Anoka and 2 were in Champlin. This portfolio had been owned by one owner for 30 years. I was primarily interested in acquiring the 2 Champlin locations, but the seller wasn’t interested in splitting the portfolio up. I had to hold off on making an offer. Subsequently, another buyer put the entire portfolio under contract at a rate of $135k per unit. Ultimately that buyer failed to close.
After five months, the properties were once again for sale. This time the seller was marketing the buildings individually, opting not to place all his eggs in one basket. The properties were listed on a Wednesday, and by Thursday morning I had toured them and submitted an offer. After some back-and-forth negotiation the seller and I reached a mutual agreement on Friday afternoon, settling on a purchase price of $2,815,000 or $117k per unit. On December 12th, 2022, we successfully closed the deal.
My Business Plan
Built in the 1960s, these buildings had received minimal cosmetic updates throughout its 24 units. Due to its current condition, the portfolio presented an excellent opportunity for value-add. The buildings were in an "A" location with an average median income of over $100K. At the time of purchase, the average rent for the 2-bedroom units was $900, while the 1-bedroom units were rented at $800. I was confident that with the planned renovations, we could substantially increase the rent to $1,400 for the 2-bedroom units and $1,100 for the 1-bedroom units.
To achieve the projected rent increases, I planned extensive renovations that would cost $18k per unit. These renovations would involve a complete overhaul of the kitchens and bathrooms. Our kitchen renovations would include a new cabinet layout to accommodate dishwashers, upgraded countertops, and stainless steel appliances. Meanwhile, our bathroom renovation plans included replacing the retro pink tile, updating the vanities to include a granite countertop, installing new tub surrounds, and repurposing the existing bathtub. To further improve the units, we budgeted for luxury vinyl plank flooring to be installed in the living room, kitchen, and bathrooms, with new carpeting in the bedrooms. Additionally, the entire unit would be painted, with new lighting and nickel door hardware installed to complete the overall facelift.
In addition to the comprehensive interior renovation plan, I allocated an additional $60k toward enhancing the common areas and landscaping. A property's curb appeal is critical as it creates the first impression for potential residents.
Why I Like It
The location of the two buildings was the primary driver in our decision to purchase the property. Situated in the NW Twin Cities suburbs, the area boasts an average household income of $96,469 as of 2021. Moreover, the City of Champlin has recently launched a massive project aimed at redeveloping a stretch of land along the Mississippi River. The project includes the construction of a riverfront restaurant and event center, as well as the enhancement of public spaces that incorporate an amphitheater and a public dock capable of accommodating up to 20 boats. Remarkably, these riverfront amenities will be located within walking distance of both 810 W River Rd and 101 Dayton Rd. By investing in properties located in areas experiencing growth, I can capitalize on the potential for increased property values and rental income, ultimately generating greater returns for my investors.
When searching for a new home, easy access to freeways and nearby employment opportunities are crucial factors to consider. The Champlin portfolio is ideally situated near the growing Hwy 610 Corridor, providing residents with a direct route to major shopping centers, restaurants, and entertainment. With Target's Northern Campus located nearby and employing over 3,300 individuals, residents of the Champlin portfolio have access to a wide range of employment opportunities just a short commute away.
How It's Going Today
After the successful closing, I immediately engaged a reputable general contractor to execute the planned interior and exterior improvements. As of now, 6 out of the 24 units have undergone renovations, and we are on track to complete the remaining units by the end of this year.
At the time of purchase, Riverway Apartments was fully occupied with a rent roll totaling $21,550. Our goal is to achieve a monthly rent roll of $33,000 by completing renovations on all 24 units by Q4 of 2023. In my initial underwriting, I projected rents of $1,050 for renovated 1-bedroom units and $1,350 for 2-bedroom units. I'm pleased to report that we have exceeded my expectations, achieving rents of $1,100 for 1-bedroom units and $1,400 for 2-bedroom units. The surpassing of our initial rent projections resulted in an additional $14,000 of annual income, which is a significant boost to the property's cash flow and overall value.
The Capital Stack
After receiving several loan quotes, I was able to secure a loan from a local bank at 5.5% for 7 years. The total loan amount was $2,345,000, with an 83% loan-to-cost ratio, including a $370,000 construction holdback. I raised $1.1 million from 10 investors, including my own investment of $80k. The purchase price for all 24 units totaled $2,815,000.
Market News
Mississippi Point Park Redevelopment
An article by Fox 9 (2021) discusses the planned redevelopment project near the Champlin Portfolio. According to the article, the redevelopment project for Mississippi Point Park will include the construction of a new multi-use building, a boardwalk, and a playground, among other amenities. The project is expected to cost around $11 million and will be partially funded by a grant from the Minnesota Department of Natural Resources. The article notes that the redevelopment is expected to be completed by the summer of 2024 and that it has been in the works for several years. Source: FOX 9. (2021, Aug 2). Champlin moving forward with the Mississippi Point Park redevelopment project. FOX 9. https://www.fox9.com/news/champlin-moving-forward-with-mississippi-point-park-redevelopment-project
Tips and Tricks
Terms:
Construction Holdback- A construction holdback is a portion of the loan amount that the lender sets aside during the construction or renovation process to ensure that the work is completed before the borrower receives the full amount of the loan. Once the construction or renovation is complete and the lender confirms that the work has been done, the holdback is released to the borrower.