1. Lincoln Parkway

Lincoln Parkway is a 112-unit complex with a mix of studio, one, two, and three-bedroom units.  The nine buildings are situated on 7.4 well-landscaped acres in a residential area in the northwest corner of Northfield.  The 2 1/2-story brick veneered property was built in 1979, and was substantially renovated in 1996 through HUD financing.   It is currently one of best maintained properties in the city of 17,000 residents, and is well-located about 25 minutes from the fringes of the Minneapolis/St. Paul metro area.  

 

Seller’s motivation drives MBG’s marketing approach

The buyer had a number of reasons he wanted to sell this asset, but the biggest issue he faced was that the property was underperforming.  During the past year or so, it showed vacancies of more than 10 percent.  (Other similar projects in the area were operating at considerably lower vacancies.)  His main goal was to get top price for the property while the market was still strong.

 

MBG acted as both the listing and the selling agent.   During the first few days of networking, we found a number of interested buyers through our database.  After showing them the property, and completing marketing materials and a financial proforma, we received two strong full price plus offers of $5.5 million.  A third offer came in that exceeded the seller’s asking price by $50,000.  We then submitted the offers to the seller and discussed the strengths and weaknesses of each.  In the end, the seller chose the highest price.  Even though the buyer was not as strong financially as the others, he was highly motivated to turn the property around with some aggressive management intervention. 

 

Creativity is key to putting the deal together 

A number of challenges followed.   First of all, the initial financial data we received from the buyer’s onsite manager was inaccurate, in some cases, and incomplete.  After a few site visits, we identified the inconsistencies and tried to do what we could.   Although some of the documents we needed were never found, we were able to create a more accurate reflection of the investment opportunity.   

 

The next challenge was financing.  The four amendments to the purchase agreement during the next few months were related directly to financing contingencies.  We worked the numbers with the lenders and explored a variety of different options to complete the deal.  The buyer could only come up with half the financing.  Finally, to help close the deal, we structured a financing strategy that included revenue bonds and an infusion of new cash with additional partners. The deal closed successfully with both the seller and the buyer satisfied with the outcome.

 

 

 

 

 

 

 

2. - cannon valley

Cannon Valley Apartments is well located in a residential area of a progressive college town that boasts two well-respected institutions.  The two-and-one half story complex is framed in brick veneer with attractive painted wood balconies.  The complex, built in 1974, includes a diverse mix of studio apartments and one- and two-bedroom spacious units.  Many outdoor amenities surround the building such as picnic pavilion, gas grills, and a playground.  The property had been well maintained; recent capital improvements included new appliances, carpeting, vinyl siding, and shingles. 

 

Property positioned as a strong investment opportunity 

MBG represented the seller in this project.  During our initial meeting, our client indicated a sense of urgency.  He wanted to sell quickly with little disruption to his onsite operations.  We also talked about his financial requirements and pertinent market factors.  Because of a steep prepayment penalty, the buyer would need to assume the existing mortgage, and incur a significant cash outlay at closing. 

 

We created a few scenarios to help position the property for investors, and to develop the best price for our client.   Our client felt comfortable with an asking price of $3,990,000 ($55,458/per unit), which was consistent with sales of similar properties in its submarket.   The property’s net operating income of $ 330,203 gave it an 8.3 percent cap rate on actual income before reserves.  Cannon Valley’s variable expenses, including maintenance, were approximately $3,300 per unit. 

 

We generated considerable interest in Cannon Valley initially through our network contacts.   The investor who actually purchased the property, however, responded to one of our classified ads.  He was driven by his interest in divesting his smaller Class C assets to buy one large, easier to run, property.   

 

MBG actively supports due diligence

There were difficult delays during the mortgage assumption approval process.  This touched off a wave of hard-core negotiations and active facilitation on MBG’s part.  A singularly tough issue was agreement on a closing date:   Our client preferred to move the closing into the new year while the buyer felt the extension was too risky because of a  soon to expire 1031 exchange.   In the end, all parties agreed to expedite the process with prompt circulating, review and approval of the documents.  Our client agreed to a pre-closing to have all issues resolved and be ready for funding.  The deal was successfully completed on time with all the terms of the sale met for both parties.

 

 

 

 

 

 

 

3. high crest apartments

High Crest Apartments is a well-appointed three-story apartment complex located in Vadnais Heights, Minnesota, a northeast Minneapolis/St. Paul suburb.  The four separate brick and cedar buildings, built in 1974, are situated on a 5.46-acre lot.  The property also consists of six garage buildings containing 102 stalls and a maintenance shop.  High Crest offers 102 units consisting of one studio; 30 one-bedrooms; 70 two-bedrooms; and one three-bedroom apartments.  The property’s original offering price was $7 million ($68,627 per unit; $79.82 per sq. ft.)

 

MBG capitalizes on an opportunity

Our brokers are typically the listing agents in most transactions, but this one offered a little twist.  A large brokerage firm was awarded the listing after valuing the property at $7 million; $700,000 higher than MBG calculated   As it turned out, the listing company’s first buyer executed his contingencies to cancel the transaction, which put MBG in a good position to bring in one of its buyers. 

 

After alerting our network of investors, a strong candidate quickly emerged.  This investor had already bought another property through MBG in the same vicinity and was anxious to build a broader mix of units.  He was also intent on finding assets he could run himself, and that would perform well.  

 

A perfect match for buyer and seller

High Crest seemed a good investment option as the current owner had made substantial capital improvements to the property—including all new kitchen cabinets, countertops, flooring and most appliances.  At the time of sale, occupancy was 98 percent and had averaged 98 percent or higher during the past 10 years. 

 

The building we had recently sold our buyer was mainly one-bedroom.  High Crest would be a perfect compliment with its predominately two-bedroom units and its close proximity.  Tenants wanting two-bedroom apartments could move a short distance to High Crest.  

 

We quickly sent him a marketing packet, and showed him the property.  Within a few days, we submitted our client’s bid for $6 million, the price close to our original valuation.  After a series of negotiations, the buyer was willing to put down substantial non-refundable earnest money to solidify the deal and it successfully closed.