Abbott Manor is a three-story, garden-style community that consist of a strategic unit mix of studio, one, two, three and four-bedroom apartments, totaling 49 beds within the 28-unit complex. The building was constructed in 1972 and has seen two recent major renovation; in 2007, $1.2 Million was invested to convert lower level offices into apartment units, and in 2016 another $375,000 was invested for capital improvements to major building systems and unit upgrades. These recent capital improvements included roof replacement, parking lot resurfacing, sewer line replacement and extensive unit & common area upgrades.
Major building systems include a flat roof, electric baseboard heat (tenant-paid), 100-gallon hot-water tanks and sleeve Air-Conditioning units. The construction of Abbot Manor is wood-framed with a brick and vinyl veneer on a concrete-slab foundation. Community amenities include on-site laundry facilities and ample on-site parking for residents and guests. Unit amenities include updated kitchens and baths, dishwashers and plenty of closet space.
The community is very well-located, being situated on a 30,000 SF/.71-acre parcel with high visibility and frontage on busy Abbott Road, within a few blocks of both downtown East Lansing and Michigan State’s campus, and adjacent to the East Lansing Public Library. Notably the property sits on the Capital Area Transportation Authority (CATA) bus route, the local mass transit provider. Being so close to campus and downtown ensures permanent demand, as proven by historical occupancy of virtually 100%. Downtown East Lansing offers over 180 retailers, restaurants and bars, offering nearby entertainment for residents.
Residents also 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.
Currently rents are averaging $621 per bed, or $1.66 per square foot, leaving a substantial value-add opportunity for an investor based on the detailed rent comparable study we performed, which can be viewed on pages 19-20. We have projected a Net Operating Income of $183,273 in our Pro Forma, which was determined by utilizing a water surcharge, current market rents and a 5% reduction for vacancy, loss-to-lease, and bad debt, coupled with Trailing 12-month operating expenses and market amounts for management fees and replacement for reserve. Currently there isn’t a water charge in place; however, it is ownership’s plan to implement one for the 2019/20 academic year. As such, for purposes of our Pro Forma we have included a $15/bed charge for water and adjusted it by the vacancy factor.
At the $3,000,000 asking price, this offering reflects a 6.11% cap rate and presents a new debt opportunity for the multifamily investment community. 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. Thus, Abbott Manor is priced well within recent market transactions and is poised for a strong future in light of the outstanding location and continued increased enrollment at MSU and associated long-term demand for local student housing. 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 Abbott Manor, 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.
