Strengths for the deal
1. Indianapolis
* The population of the metropolis is 2.1 million inhabitants.
* The population of the city itself numbers about 890 thousand residents and registers a total increase of about 10% during the last 10 years
* The median price in the metropolis is $290k - an increase of 18.3% from the previous year.
* 10 headquarters from the Fortune 1,000 list and very diverse workplaces.
* Chosen in 2020 as the third best city to work in.
With a metro area of nearly two million people, Indianapolis is the second largest city in the Midwest and the 14th largest in the United States. The city poured billions of dollars into regeneration and is now ranked among the best cities according to Forbes.
As a city of about 850,000 people, Indy has long been known as a center for the production of air conditioners, cars, auto parts and more. However, like most US cities, Indy's manufacturing industry has greatly diminished, but, they haven't given up. In fact, they did just the opposite. In the last decade the city has steadily and quietly become a national center for new technology.
Today, Indianapolis is home to more than 150 technology companies, including Salesforce, Angie's List, MOBI, and an organization called TechPoint that aims to promote and accelerate the growth of the Indiana technology community.
Some of the factors that make Indy attractive to tech companies include a low cost of living, limited government regulation, and a steady stream of qualified applicants from several local (and prestigious) universities. In fact, Indy offers tech workers a much more rewarding life compared to the East and West coasts. For example, a tech worker earning $100,000 a year in Indianapolis would need to earn $272,891 to have the same standard of living in San Francisco.[bestplaces.net].
With a growing metro population of over two million residents, Indianapolis is undoubtedly a shining star in the Mid-West that has secured its place at the top of several national rankings. The metro is home to diverse and growing businesses, an educated workforce, world-class sporting events, prestigious cultural attractions, as well as an ever-growing list of entertainment, shopping, dining and entertainment options. The residents enjoy a higher than average quality of life as a result of a balance of work and life, this figure is reflected in consistently high national rankings and a constant flow of new developments and work commitments. The city of Indianapolis is the largest employment center in Indiana. Indianapolis, often referred to as "Indy", anchors one of the largest economic areas in the United States. The downtown area has experienced a booming economy over the past few years with more than 10 regional, national and international Fortune 500 and Fortune 1,000 corporations having a major headquarters or presence in the metro area. The economic performance of downtown Indianapolis is best known for its center for commerce, tourism, government, finance, pharmacy and hi-tech studies. Growth in the technology sector has been extraordinary with an influx of tech giants like Salesforce.com Inc. And other startups continue to move to the city.
2. Growth in the population and places of employment
Over the past 10 years, Indianapolis' population has grown by more than 8%, with suburban Indianapolis districts such as Hamilton, Boone and Hendricks seeing increases of more than 20% over the past decade. This is 36% faster growth than the national average of 5%.
This shows us that the Indianapolis population is growing faster than many other markets in the US today. One thing to note is that this rapid growth is not new to Indianapolis. In fact, the indie population has grown by more than 36% since 1989.
In the last year, the number of jobs in Indianapolis grew by more than 2%, which is higher than the national growth of 1.7%. In addition, Indianapolis is actually one of the fastest growing centers for technology and biology in the country. All of these are excellent signs for investors looking to invest in a growing but more stable real estate market.
3. Stability and growth
The market in Indianapolis is one of the stable real estate markets in the US, with very low volatility, at any point in the market cycle. The market enjoys interest and strong growth that is expected to continue in the next decade as well. Almost 80% of the country's population can be reached from Indianapolis in one day's drive, which proves to be a critical feature in light of the changing face of the retail and logistics markets, as well as the interest that technology companies such as Salesforce find in the region, these and more will contribute to stable growth in the years to come.
4. Natural growth
The Indianapolis market is experiencing a major wave of population and job growth in 2010-2021. Population growth is one of the most critical demand drivers in the multi-family sector. Indianapolis experienced annual growth of 5.98% in the central areas of the city and almost 1% in the metropolitan area. All of this puts the Indianapolis metropolitan area in a great position to continue to hold high rents and occupancy.
5. Strong "exit" conditions
The demand for high quality affordable housing in the Mid-West and Indianapolis in particular is at an all time high. This demand is expected to grow further as more and more employers move to the area, construction costs continue to rise and the supply of properties is extremely limited. A property of this type is highly sought after by institutional buyers and the improvement plan intended for the project will surely make it even more attractive at the sale stage.
6. Low rents in relation to the market
Our analysis shows a gap of up to $xxx attributed to the high rent growth in the area in the last 12 months. The strategy is to catch up with this gap by improving the rental process and of course upgrading the apartments.
7. Improvement
The improvement strategy includes upgrading at least 33% of the apartments, as well as upgrading the common areas and the pool area, the residents' club, playgrounds, signage and courts. Our calculation shows discounts on the increase in rent on average of about $xxx per upgraded apartment and a total of $xxx,xxx for NOI (net income) as a result of the improvement actions.
8. 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.
9. Profit on purchase and flow from the first day
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.
10. The population level in the area
The property is in a B+ level area, meaning blue collar middle class and a low crime rate.
11. Potential for value increase and Value Add, and the potential for rent increases
The entrepreneur managed to close the deal, at a price lower than the market price. Also, the previous owner was able to obtain higher rents in the ranges of $150-225 for the upgraded apartments; The developer plans to continue the improvement program because most of the apartments remain unrenovated.
The management team's strategy includes renovation of the interior spaces, as well as improvements in common areas.
The Proforma analysis assumes a significant increase in rent for the upgraded units according to the rent increase we saw in the units that have already been renovated. The renovation will position the property as one of the best properties in this submarket, which will result in a significant increase in value before the sale.
12. The property
A 470-unit, garden-style multifamily with 39 buildings and a location on the west side of Indianapolis near Eagle Creek Park, I-65 and I-465, 10 minutes from downtown. The project was built in 1977 and partially upgraded in 2020, offering plenty of opportunities. The current owner has invested more than $4 million in upgrades over the past two years, including $500,000 on roofs, $250,000 on gutters and parking lots, $250,000 on a clubhouse and fitness center, and about $100,000 on pool and picnic area upgrades. In addition, the club and facilities were recently upgraded with a best-in-class luxury package. Since only 172 of the total 470 apartments have been upgraded, continuing to upgrade the rest of the apartments is an extraordinary opportunity and certainly in light of the proof of the viability of the apartments that have already been upgraded. On average, the upgraded apartments are rented for about $XXX more than the regular units, where apartments with 2 rooms and a living room and 1.5 bathrooms and a shower receive an impressive rental increase of about $XXX+. As such, the future business plan is clear: to continue upgrading the apartments, and significantly increase the income.
13. Size advantage
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 XX million dollars, and the project received funding with government backing (Freddie Mac - Penny May) of X percent of the project amount with a phenomenal interest rate of X percent only.
A project that includes financing increases the overall security of the project because an external body - the analysts of the lending bank, checked the deal and decided that it is safe enough to finance this deal with XX million dollars.
14. The staff
The project is being carried out together with an experienced local partner - July Residential.
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).
15. A 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 affordable, high quality housing in the area is at an all-time high. This demand is expected to grow, as more and more employers move to the area, development costs rise as the supply pipeline to the submarket remains limited. Multi-family complexes such as this complex are sought after by institutional buyers and the sponsor can offer the buyer a set of properties that can result in a significant premium on the sale price.
16. Identity of interests and complete registration of the investor in the transaction
Investors will be officially registered in the company's incorporation agreement as part of the property owners.
Investors have priority over the entrepreneur in the distribution of profits. We and our local partner will personally invest (about half of the required equity balance) alongside the investors and under the same conditions.
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