Vivio on 10th Apartments
Download Offering Memorandum
Pepper Pike Acquisition Associates, LLC
Targeted Hold Period:
232 Apartments Units
- Unique Conversion Strategy: By converting the four-bedroom units to one- and two-bedroom units, the Co-Managers expect to earn more rent per square foot for market rate apartments than the current student housing layout. A $3.12M construction budget is targeted to complete this conversion and remaining unit refresh, which the Co-Managers believe will generate on average $229/unit more in monthly rent compared to in-place rents, representing an expected 20.4% return on investment.
- Competitive Rental Pricing: The Co-Managers will market the renovated and converted units to the broader market rather than only to students. This wider marketing strategy is expected to garner increased demand, with rental rates that compare favorably in the Indianapolis market. The average blended rent for competitor properties is $1,541 per month, while the Property’s post-conversion un-trended market rents are targeted to be $1,575.1
- Market Experience: Pepper Pike’s acquisitions in Indianapolis include 9 on Canal, Riverbend, Crooked Creek, Lake Castleton, A62 Apartments, and Fountain Parc. The Co-Managers believe this experience and scale in the market will aid in generating operating efficiencies and reduce execution risk.
- Strong Demand in a Great Location: Renowned investor Peter Linneman ranked Indianapolis a “red hot” market, second only to Salt Lake City.2 The market has rebounded from COVID and is experiencing strong employment growth and only 2.0% unemployment.3 Healthcare and related employers like the Elanco HQ close to the Property are expected to continue to grow. The local economy supported 11.3% year-over-year market rent growth.4 Meanwhile, new construction in 2021 and 2022 is the lowest in annual deliveries since 2012-2013, with vacancy remaining tight at 5.7%.4
*The business strategy is subject to change. There are many risks to participating in this opportunity. See “Risk Factors and Fee Disclosures” in the Offering Memorandum for a discussion of some of these risks, including loss of capital, illiquidity, lack of diversification, and capital call risks. This opportunity is unsuitable for investors who are not prepared to hold their ownership position indefinitely and who cannot afford a complete loss of capital.
1 CoStar Competitive Set Properties, April 4, 2022
2 The Linneman Letter, Q1 2022
4 Indianapolis Market Multifamily CoStar Report, April 2022
Property & Renovation Summary
The information provided in this FAQ is intended only to supplement an investor’s review of the formal Offering Memorandum. All projections, targets, timelines, or business plans described below are preliminary, may not be achieved, and are subject to change. Like all real estate investments, this opportunity is speculative and involves substantial risks including, but not limited to, illiquidity, lack of diversification, complete loss of capital, construction/renovation risk, default risk, and capital call risk. No investment decision should be made based solely on the information in this FAQ. Each prospective investor should review the formal Offering Memorandum, including the Risk Factors and Fee Disclosures, with competent legal, tax, or other advisers.
Why are we operating it as student housing the first year?
The peak student leasing season during summer has already been completed, and acquisition is expected to be completed by 9/30. Fully leasing the property to students is expected to allow time for the Co-Managers to secure permits, materials, and labor, and work on leasing and re-branding strategy for the conversion work targeted to begin in July 2023. The interim income is also expected to cover year 1 debt service.
What is current occupancy %?
When will we begin conversion and renovation work?
– Re-leasing the non-converted units in year 2 is expected to help stabilize occupancy
– Light renovation is targeted occur as leases turn throughout year 3 of the hold
How long is the renovation expected to last and how many units per month do we anticipate renovating?
What is the expected occupancy during construction?
How much Capex have we budgeted towards renovations?
What improvements are expected to be made during construction/renovation?
– Amenities, landscaping, and signage may be lightly retouched after completion of the conversion work.
Why are we converting the four-bedroom units to one- and two-bedroom units?
What rents are targeted post-renovations? (Are we expected to be below comps in the market)?
Do we anticipate making cash distributions to investors, or will the income be used for operating expenses?
When do we plan to exit and why are we confident in our exit targets?
We plan to exit in month 48 of the hold at a 5.00% exit cap, or $242,553/unit.
– $242,553/unit is expected to be below replacement cost for a Class A apartment asset
– We are also assuming 0.10% of cap rate expansion per year on the going in cap of approximately 4.6%
What is our assumed growth rate of revenue?
– This is at or below the CoStar forecast rent growth (8.5%, 4.7%, 3.5%)2
2 Indianapolis Market Multifamily CoStar Report, April 2022