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Case Study: The Reserve at Sugarloaf |
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Atlanta, GA |
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History in the Market – With previous success in the multi-family property sector, FFC Capital was interested in increasing its portfolio of mult-family projects to other desirable, high growth geographic markets in the country. FFC Capital identified a 333 unit Class A apartment complex situated on 25.9 acres in Gwinnett County, a northeastern suburb of Atlanta, Georgia. At the time, the area was predominantly rural in nature and was developing into a more densely developed commercial and residential suburban area. Based on projected growth in population, households and employment, the neighborhood immediately surrounding the property was in the growth stage of its life cycle. |
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Opportunities |
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The complex was developed by Atlantic Realty Partners and completed in the spring of 2002 with approval for condominium conversion. With ambitious development in the late 1990s, oversupply of apartments had lead to decreasing effective rents and falling occupancies. As a result, the newly constructed Class A property only reached 90% occupancy in the summer of 2002. With little new inventory expected in the market, and population, household, and employment growth projected to continue to increase in the next five years, in October 2002 a subsidiary of FFC Capital purchased a 76% controlling interest in the property for $24.4 million with $6.6 million in equity. |
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Performance |
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With a shift in the unit inventory from one and two bedroom units to larger two and three bedroom units, occupancy increased over the years with the property reaching 98% occupancy in 2004. Rental revenues also increased over time due to the shift in unit inventory, periodic rental rate increases, as well as the constant efforts by property management to monitor and continually reduce rental concessions. With the project’s market appreciation and market low interest rates, FFC Capital seized the opportunity to refinance the property in May 2003 converting from a floating libor interest only loan to a fixed interest rate conventional loan with $1.7 million in loan proceeds being distributed to FFC Capital. With all of the above changes, FFC Capital was able to achieve return on equity of 13.8%, 15.5%, 13.3% and 12.0% in 2002, 2003, 2004 and 2005, respectively. |
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Increasing interest rates over the following years in the single family sector created demand for rental units in 2005. In addition, apartment conversions to condos over the following few years reduced rental unit supply. With The Reserve at Sugarloaf achieving occupancies in excess of 98% combined with the property appreciation since 2002, 2005 presented the ideal opportunity to negotiate the sale of the property. The Reserve at Sugarloaf was sold on July 1, 2005 to an institutional investor for $43.925 million with FFC Capital achieving an internal rate of return of 50% with $7.5 million in profit. |
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