Analyzing FIG's Porter's Crossing (4 Years Later)Apr 01, 2021
Now that it's been over four years since completion, we went out to one of our multi-family projects in Utah County to talk about how it's performed. We originally announced Porter's Crossing to our real estate investors back in January of 2017.
- How has the project held up?
- How has the investment performed compared to our original proforma estimates?
- What do the recent rents/sales look like?
Timeline of Porter's Crossing
This project was a long time in the making. Typically, these developments are in the works for around a year before we begin talking to investors about them at all. So January 2017 is when we started mentioning this to the investors. By October 2018 we had turned over the very last unit for its official certificate of occupancy.
Around that same time in October is when we were undergoing our final stretch of lease-up. Granted, leasing was well underway prior to that last unit turning over and being completed (it's done in phases as fourplexes are finished).
Whenever you turn over a bunch of units in October, you get a little bit of a slug ahead of you because you're getting into fall and winter. For this project, it was the following spring that everything was finally completely rented up.
Over the last four years, occupancy in Porter's Crossing has been consistently in the mid-to-high 90s. This part of Eagle Mountain (tucked up against Saratoga Springs/Lehi) continues to be a good growing area and continues to expand.
The unit breakdown for this project adds up to 94 units. We ended up building 20 fourplexes, 3 triplexes, 1 duplex, and a few townhomes. This project also includes a playground in the subdivision, a little clubhouse, and lots of tenant parking.
Initial Proforma vs Now
To tackle this analysis, we've picked a random fourplex in the project and had the property manager send us the rent rolls for the last 27 months. That's from month one of being rented until now (March 2021).
One of our clients owned this unit in one of the earlier phases of the project. Keep in mind that our costs sometimes don't average out per unit—it's more of a development thing. The following stats are per unit in this fourplex. There could be some fourplexes that did better and some that maybe did worse than this one. Generally speaking, when you're talking about four units over 27 months, you do get a pretty good idea of what you have on your hands.
So let's take a look at this...
The original purchase price for this investor (as part of the 2017 proforma) was $678,000. This includes any upgrades he may have done as well. So this is what he ended up paying for this fourplex.
What would this sell for now?
We ran a couple of comparables. The first one is in this same subdivision. It sold on July 2, 2020, during the heat of the pandemic for $899,000.
The second comparable sold on February 19, 2021, in our FIG community right across the street (Dublin Farms). This particular fourplex is probably 200 yards away and sold for $990,000. Both have a similar floor plan—three-stories and actually a little bit smaller square footage than the subject property.
So that's where we ended up on values.
Let's talk about rents. We projected $1,370/mo per unit on the original proforma in 2017. This includes all of the fees: technology fees, pet fees, etc. We did an overall gross rent in this calculation.
The subject property started a little bit slower but has come back up. Unit A is currently rented at $1,350/mo. Unit B: $1,320/mo. Unit C: $1,370/mo. Unit C: $1,320/mo. So one of the units hit our original projection, and the others were within $50.
We originally projected a 3% vacancy rate at Porter's Crossing. We reviewed the rent rolls from the property manager and averaged everything. We looked at when we didn't hit our projected NOI. The vacancy rate ended up being 2%. While we were a little bit lower on rents, we did end up being better on vacancy and a lot better on re-sell value.
This one is more a snapshot of this moment in time. There's a lot of interest rate news happening as we write this in March of 2021...
The proforma called for an interest rate of 5% four years ago. That's what we felt like it was going to be at the time. Right now, investors have been doing refinances at 3.625%!
For the purpose of this analysis, we ran a calculation at 4%. We went off of the assumption that this supposed client had refinanced sometime in the last 12 months and their rate moved down from a rate of 5% to around a rate of 4%.
So what that means, is you'd have an original principal and interest of $2,730 assuming a 5% interest rate. If this gets adjusted to the rate of 4% this changes to $2,428. So we have some savings there but we don't get hung up too much on that because rates go up and rates go down.
Take advantage of rates when they're low. However, and income property can still make a lot of sense if the cash flow is there.
We're obviously going to be low on the proforma considering what has happened on the values. Our original estimates for property taxes were projected at $4,000/yr. The 2020 assessed values according to Utah County are at $4,510/yr.
The proforma released to investors estimated $42/mo but the actual number came out to $38/mo. This is where this particular client ended up on uninsurance and that really is subject to a variety of things like the deductible that you choose, different coverage items, etc. And that's an HO-6 (the walls-in) because the HOA covers the bulk of the insurance on these deals.
You as an investor have a little bit of control over these costs based on the risk that you want to take.
We had projected $150/mo per door. In 2021, this particular fourplex is sitting at $177/mo per door and that's pretty normal. We've not yet had a special assessment at FIG and we typically fully fund reserve studies and our HOA collects for those. So the money is there when capital improvements need to be made. Even with that, you do see dues gradually increase over time because water service, trash, cable, etc tend to go up over time as well.
Looking further at cleaning and maintenance this is subject property must have had a particularly nasty tenant. We projected $75/mo on our proforma. We told investors to save that much each month for a rainy day fund for when they have some repairs that need to be done on their brand new unit.
We'd probably be telling him to save well over $100/mo now, given that it's been four years and units are starting to get a little bit older. These four units in particular averaged out to $226/mo over the last 27 months since completion.
Funny thing was that it came in almost one chunk. Most of the time this investor had no repairs that needed to be done, and then one particular month he had somewhere around $5k. There were a couple of move-outs around then so he likely had to do a whole bunch of carpet cleaning/repairs at that one time. It likely was a tenant that had been very rough on the unit. So for maintenance, this fourplex came out to $226/mo versus the $75 projected.
For the monthly cash flow, we looked at the true net. Taking the gross rents received, backing out mortgage taxes, insurance, HOA, vacancy, maintenance... everything that we can think of.
Our original projection was at $1,201/mo. As of right now (March 2021), monthly cashflow ends up at $1,059.80/mo. So we're looking at about $150 off the original projection and for some of these criteria, this is pretty normal. Again, this is a moment in time and you really have to capture it over time to see what happens.
Right now, as we're going through leasing on other projects, we're getting at-proforma on some projects and below or above on others. While you really only know after watching over time, the proformas tend to turn out pretty close to what investors expect.
Porter's Crossing has been an interesting one and we plan on doing more of these breakdowns soon so you can look at how other build-to-rent projects have performed. Some will come in far better, some not as much. The intent is to show all investors the good, the bad, and the ugly so you can make the best investment decisions for yourself moving forward. We're very excited about the market right now and have a lot of confidence in all of the projects we have in the works in the next 12 months.