LYNNFIELD PLACE APARTMENTS

The Property
Lynnfield Place Apartments was a 400-unit apartment community in the Germantown section of Memphis, Tennessee.  The community was purchased in November 2003 for $10.2 million.  Lynnfield Place was built in 1974 and was aged and obsolete relative to the surrounding area at the time of purchase.

The Play
Harbor Group International (“HGI”) purchased the property believing that its location was superior to the competition.  The property sat adjacent to St. Francis Hospital, across the street from Lynnfield Office Park and near Park Place Center, an upscale retail shopping center.  However, the property’s age did not allow it to capitalize on its location.  HGI was able to acquire the property at a very favorable cap rate of 10.6% compared to a market average of 7.8%. HGI purchased Lynnfield Place Apartments for $24.32 per square foot compared to $58.12 per square foot for comparable deals in the market. 

As part of the purchase, HGI budgeted nearly $6 million on capital renovations for improvements to the landscaping and parking lot, structural and exterior repairs, interior upgrades and other property enhancements.  The most notable improvements included replacing the damaged wooden catwalk railings with a more modern railing which improved the structural soundness and provided aesthetic appeal. All of the deteriorated wooden siding was replaced with modern Dutch-lap vinyl siding to improve the look and durability, and a complete overhaul of the exterior painting was done to lighten and refresh the property.  The construction was over seen by HGI’s internal Construction Management group. With their guidance, the work scheduled to be completed in 24 months was diligently completed in 16 months at an 8% discount to original cost projections.

The Conclusion
During the HGI-supervised construction period, occupancy remained strong and rental increases were applied as the renovated units turned.  The renovation improved the property’s appearance and curb appeal for prospective tenants.  This was reflected in a 16% increase in average rents and an increase in occupancy from 89.8% at acquisition to 94.3% at disposition.

The property was sold for $20.9 million in April 2006 after the successful capital improvement project.  The sale yielded a 34.9% IRR and allowed HGI to return 193.3% of the equity invested in the deal.