A profitable investment from day one in the hot market of Houston, Texas 

The Newmark report on the Houston real estate market is available on our website

Lecture by Lior Lustig - Advantages of residential complexes in times of crisis

Strengths for the deal

1. Texas - In general
Texas is a major destination for many companies due to tax and weather benefits, including Tesla, Apple, HP and more. Texas is experiencing strong positive migration and low unemployment rates and includes a large number of anchors in various areas: energy, technology, medicine and more.

2. Houston, Texas - in particular
While other major Texas rates have risen significantly and become less accessible and at higher risk for price fixes, such as Austin which has already risen about 45 percent in the past year and Dallas which has risen about 30 percent in the past year, Houston has risen at a much lower percentage so it is still affordable Where to go up and less where to fix.
Organic Growth: Houston is one of the state's leaders in population growth and job growth, and is expected to continue its growth for the next five years. Axiometrics expects a 4.3% to 6.3% increase in rent for 2021 and 2022 in northwest Houston, reflecting strong demand for this complex in the coming years.

3. Resistance to crises
A. Residential property:
In times of crisis we have seen a significant advantage in residential properties, because while offices and commercial real estate have alternatives, such as working from home or ordering products online, the population always needs a place to live at reasonable costs, and multi-family properties allow this.

B. Multi-family:
In times of crisis the properties that showed the highest stability were multi-family properties, because if one of the spouses lost his job, the family will shrink from a house that costs $ 3000 per month to an apartment that costs $ 850 per month and it can be seen that rents of multi-family complexes increased Occupancy.
You can watch my lecture on multi-family properties and their benefits in times of crisis here.

4. Profit on purchase and cash flow from day one:
In real estate transactions there is a rule - the profit is made on the purchase.
Strategy: Buy at an Opportunity Price ® ​​Improvement and Profits from Current Lease ® Maintenance and Profits from Leases ® Project Sale (Exit)
The project in question was purchased at a price that embodies a significant discount from the market price and in fact generates a profit already at the time of purchase.
In times of crisis, the most important thing is cash flow - and with an occupancy rate of 96 percent, the project generates cash flow from the first day of entering into the transaction.
5. Population level in the area:
The property is in a Level B area, meaning a blue-collar middle class and a low crime rate.
Tenants are affiliated with the Fairbanks School District, which ranks second in Harris County, so there is an attraction to the place of a quality population that stays for a long time until the children finish school, which contributes to income stability. In the United States, the level of schooling is a decisive factor in the rise in prices, since a quality school causes strong migration of families to the area and stability in rent.

6. Value-adding potential and Value Add, potential for rent increases:
The developer purchased the complex at a price significantly below the market price, and will improve about 50 percent of the apartments in the complex in order to increase the value prior to the sale.

The management team's strategy includes the renovation of 50% of the interior spaces, as well as improvements in common areas and touchups to the pool area, the tenants' club, the playgrounds, the signage and the pitches.
Proforma analysis assumes an average increase of $ 80 per unit for interior renovations and a total increase of $ 257,280 in Net Operating Income. The renovation will position the property as one of the best properties in this sub-market, which will result in a significant increase in value prior to the sale.

7. Economies of scale:
In real estate, the larger the project, the greater its stability and stronger bodies are involved.
The project in question has a total cost of about $ 60 million, and the project received government-backed funding (Freddie Mac - Penny May) of 70 percent of the project amount at a phenomenal interest rate of only 2.6 percent from Berkadia (https://www.berkadia.com), A company owned by Berkshire Hathaway, owned by legendary investor Warren Buffett - which shows the confidence of the banks in the project and the management team. A project that includes financing increases the overall security of the project because an external body - the analysts of the lending bank, examined the transaction and decided that it is safe enough to finance $ 42 million in this transaction.
8. The team:
The project is being carried out together with an experienced local partner - July Residential.
Enterprise, a company that has been in existence since 1982 and has invested over $ 44 billion in various residential projects, will take part in the deal, creating 781,000 homes and apartments in all 50 states of the United States to make the home and community places of pride, power and belonging. The company has invested 87.5% of the capital required as a deposit to obtain the loan, which adds to the overall security for the investor, as a significant body has been added, reviewed the transaction and decided it was worthwhile to invest such a significant amount. https://www.enterprisecommunity.org)

The management company that will manage the project is Element National, a huge asset management company that manages about 15,000 properties in the United States (https://elementmgt.com), Which adds security to the transaction due to the experience of this company, as well as something that ensures efficiency in managing and reducing expenses.

One of the owners of its actual management company and CEO (Roberto Levali) is a partner in July Residential, the experienced company that carries out the actual project - this of course leads to a clear identification of interests and will be an important part of the success of the deal.

The investment will be accompanied in Israel by GBK - an international law firm and one of the leading firms in Israel in the field of commercial agreements. The accompaniment will include all investors and the company.
For advice on American taxation you can contact our accountant (please get back to us by return email to schedule a call).
Articles published on the closing of the deal:

• Berkadia Arranges Financing for July Residential's Acquisition of 536-unit Carmel Creek Apartments | City Biz
• Real estate transactions: 6 companies ink leases in renovated west Houston building | Houston Chronicle
• New York Investor Buys 536-Unit Apartment Project in Houston | CoStar

9. Strong exit strategy:
The property is expected to be held for 3 to 5 years and at the time of sale generate additional significant profit for investors, beyond the current cash flow.
Demand for high-quality affordable housing in southeast Texas is at an all-time high. This demand is expected to increase, as more and more employers move to the area, development costs rise while the sub-market supply pipeline remains limited. Multi-family complexes such as this complex are in demand by institutional buyers and the sponsor can offer the buyer a range of properties that can lead to a significant premium in the sale price.

10. Identity of interests and full registration of the investor in the transaction:
Investors will be officially registered in the company's incorporation agreement as part of the property owners.
There is a priority for investors over the entrepreneur in the distribution of profits.
Identity of interests: We and our local partner will invest personally (about half of the required equity) alongside the investors and under the same conditions.

Map of employers moving to Houston from across the United States

Overview of the Houston, Texas Real Estate Market

Illustration photos from the residential complex

Aerial view of the complex

Video - "What makes Houston a great place to live"

Pictures to impress the investment