The Cottages is a 33-unit, cottage-style community that consists of a strategic mix of one, two, three, four and five-bedroom floorplans, totaling 100 beds. Notably all the two, three, four and five-bedroom units contain a range of 2½-5½ bathrooms, thus a private bathroom for each resident, proving a decisive advantage in the marketplace. The private garages located under 7 of the buildings are also an attractive resident amenity. These two-story buildings were constructed in recognition of the popularity of this floorplan in the evolving student housing marketplace.
Major building systems include pitched roofs, gas-forced air furnaces (separately metered) and central air conditioning (separately metered). The wood-framed, vinyl sided structures are built on poured concrete and block foundations. The property has fire suppression systems including sprinklers and contains hard-wired smoke detectors. Unit amenities include fully furnished family rooms, furnished bedrooms, in-unit laundry, granite countertops, stainless steel appliances, Wi-Fi, patios, balconies, private garages and ample surface parking.
The community is very well-located, being situated on a 2.31-acre parcel with high visibility, signage and frontage on busy Abbott/Chandler Road, within 2½ miles of downtown East Lansing and MSU’s campus. Notably the property sits on the Capital Area Transportation Authority (CATA) bus route, the local mass transit provider. A short drive away is Eastwood Towne Center, which offers big box retailers, eateries and Celebration Cinemas, a multiplex theatre. Downtown East Lansing offers over 180 retailers, restaurants and bars, offering extensive entertainment for residents.
Residents have close access to all the major thoroughfares in the area including I-96, I-496, US-127, M-43 (Saginaw Road), Lake Lansing Road, Grand River Avenue and Michigan Avenue, all accessible within a few minutes’ drive from the community. Amtrak has a passenger rail service station in East Lansing and the Lansing Capitol Region International Airport provides passenger service. All of the foregoing considerations lend to a high-quality of life for residents of The Cottages.
FINANCIAL:
Currently rents are averaging $608 per bed, or an average of $1.74 per square foot, leaving a substantial value-add opportunity for an investor based on the detailed rent comparable study we performed. In addition to below market rental rates significant value can be added through the implementation of a water surcharge (which ownership intends to implement for the 2019/20 academic year) as well as a charge for the bedroom furnishings, which are currently provided free of charge. In our underwriting we have applied a water surcharge of $20 per bed; however, we have not accounted for the additional ancillary income that can be produced through a bedroom furniture charge. Utilizing a water surcharge, current market rents with a 2.5% reduction for vacancy and bad debt, T-12 operating expenses and market amounts for management fees & replacement for reserves produces a projected Net Operating Income of $414,996 in our Pro Forma. The Cottages is being presented to the market as an Assumption of the existing Fannie Mae non-recourse financing. Details of the debt include 9 years remaining on the term and an incredibly competitive interest rate of 4.48%. Thus, at an asking price of $6,350,000 this asset reflects a 6.54% cap rate.
There have been many recent sales of student apartment in East Lansing and cap rates have averaged just over 6% with an average price per bed of $77,981. Details of these transaction can be viewed within our Offering Memorandum. Rental rates in this market can grow at 5% a year and present a favorable return for a long-term hold strategy.
Demand is enormous for high-quality, well-located multifamily assets such as The Cottages, as many investors see significant downside in the stock market and other real estate asset classes, multifamily assets have become the darling of the commercial real estate industry given their internal hedges on recession and bullish long-term outlook for operating fundamentals and demand.
