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A Vertically Integrated Look at Value-Add Investments

A Vertically Integrated Look at Value-Add Investments


In today’s world of Magnolia Network, HGTV, and the DIY channel many people are all familiar with the concept of a fixer-upper. The before and after examples of turning an old, run-down property into a trendy updated home are amazing. But how does that translate in the world of multifamily? Yes, there are examples of syndicators taking an older property and updating it. But for our vertically integrated teams at REEP, we take the concept of Value Add to a higher level.

The Process of Value-Add


The REEP teams look for properties that fit the goals of our investors and are sound investments. Many of these properties are Class A – B assets. Adding value to a property that isn’t old and run down is a delicate process. The opportunities to improve a property aren’t always as obvious as simply adding new paint and repairing worn-out buildings but there is value to be added if you know how to execute the process correctly.

When we are looking at a property, one of our initial steps is to compare the property with the other similar properties in that submarket – grouping them by distance from the target property. From this list, we do a deep dive into the amenity differences and the rents the other properties are charging compared to the target property. Once we are armed with this knowledge, we can make an educated business plan for how to improve the property.

At REEP we recognize the process of improving our properties is an important one. The improvements we make directly impact the rental rates, occupancy levels, renewal rates, and property expenses – thus creating the forced appreciation that will benefit our investors and communities in the long run.

We know that simply slapping a coat of paint on something isn’t going to bring the full level of improvement that a property is capable of. Instead, we look for the distinct differences that are allowing our competitors to charge more. By identifying where our property is lacking compared to its competitors, we can strategically improve the property based on what renters in that submarket are looking for. 

Case Study

In December of 2020, we closed on Chartwell Court – a 243-unit, Garden-Style, Class A property built in 1995. The property is beautifully landscaped and had many of the amenities renters are looking for.

On the surface, the property was already a healthy, thriving asset. But our vertically integrated teams know where to look to find the opportunities to force appreciation. By analyzing the competition, we learned that there were distinct changes that would allow us to increase rents.

Learnings and Solutions


Renters want a sense of community and a retreat from the busy world. 
To accomplish this, we added a welcoming fire pit, outdoor kitchen, and remodeled the clubhouse to improve the business center, coffee bar, and lounging area.

Renters want updated appliances, a cool color palette, and maintenance-free homes. 
To accomplish this, we added faux wood flooring, granite countertops, stainless appliances, updated paint colors, and hands-free faucets.

By making these small changes, the renovated units achieve an average rent premium of $180 or 14% over previous rents – exceeding the estimated rent bump by $80. Additionally, the property has an above-average occupancy and renewal rate.
Taking it a step further


Upgrades are a common way for syndicators to force appreciation, but REEP does not stop there. Our vertically integrated teams are deeply involved in our markets and benefit from the knowledge this provides. Through our ability to scale quickly and share resources, we provide economies of scale to our properties.

Continuing with our Chartwell Court Case study, by utilizing our highly trained teams and management practices REEP Management was able to provide a 14% reduction in controllable expenses at this property.

Summary


With the right syndicator, every property has the potential to improve its value. When done correctly, both the investors and the tenants benefit from the improvements made. Investments have risks associated with them. By carefully researching and planning our business plan, REEP strives to provide opportunities that provide a clear execution strategy, helping to minimize risk.   

With each opportunity, we will provide examples of how the property compares to its competitors and what improvements we plan for the property. We will outline what the current value of the property is and how those improvements will impact rent rates and how that can affect its appreciation.

We recognize that choosing a syndicator and an investment opportunity can be a daunting process. If you have questions, please feel free to schedule a call or email our Investor Relations Manager, Rebecca Treanor.

Our investment opportunities are sent exclusively to our Investor List. If you would like for us to confirm that you are on that mailing list, please email us.

Thank you for reading our blog. We look forward to working with you in the future and appreciate your time.  

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