Overview

This Case exemplifies Charlesgate Multifamily’s ability to successfully source off-market opportunities that, at the time of acquisition, were under performing assets and then consult with the new owner to create a plan to increase the property’s gross income.

The Client

The client in this case was a Boston real estate developer that also owned and managed a personal portfolio containing mainly 3-family apartment buildings in Boston. The client had just finished selling off most of his holdings in Dorchester and came to us to help find him a much larger asset.

Base Case

5 – 15 Hancock Street in Everett is a 50,000 square foot brick apartment building built circa 1920. The property is ideally located on the corner of Hancock Street and Broadway and is easily accessible by public transportation as there is a bus stop located directly in front of the property. We were able to locate this off market property through our industry professional contacts. Another broker with whom we had worked with on another transaction in Cambridge mentioned that the owners of the property in Cambridge had a few more buildings in their portfolio that they were considering selling. We were able to convince him not to bring the property to market and allow us to present it to one of our clients. Prior to contacting our client, we had the opportunity to review the buildings unit mix and financials. Without actually seeing the property, we were confident that based on the financial information provided, the building was grossing below market rates. We saw the potential to substantially increase the annual gross by increasing the monthly rent on the property’s 25 one bedroom & 17 two bedroom units. An average increase of 8% in the monthly rent of both 1 and 2 bedroom units would translate into a roughly 7% overall increase in gross rent. Furthermore, we were confident that with some cosmetic upgrades to the building’s exterior and interior common areas, the current 10% vacancy rate could be reduced by 60%.

The Sale

After reviewing the building’s financials and realizing the opportunity to decrease the vacancy rate and increase the gross income, we contacted our client to inform him that we had located an off market property that we strongly felt would interest him. We then sent him the building’s financials and informed him of our conclusions regarding the underperforming asset and recommended that he see the property the following day. The appointment was scheduled for the next day and at the conclusion of the tour, he indicated that he was ready to submit an offer. In this case, we acted as buyers agents with a fiduciary obligation to our client. After a few hours of negotiating, the property was placed under contract for $5.85M or $106,363 p/unit.

Consulting

Prior to the closing, Charlesgate Multifamily prepared a detailed rental analysis of Boston’s inner ring communities in order to determine which unit types in the property were currently being leased at below market rates. As a result of the analysis, Charlesgate Multifamily determined that the two bedroom units in the property were being leased for approximately $100 – $150 p/month less that the standard market rates and the one bedroom units were obtaining $100 less that market rents. We suggested a plan for our client to gradually increase the rents for these units beginning immediately after the closing. It was important to begin this process gradually as the 1 and 2 bedroom units comprised 75% of the units in the building. Therefore making a dramatic 7% rental increase across the board may have resulted in higher vacancies.

Additionally, the property was operating at 90% occupancy, well below market standards. We felt that making cosmetic upgrades to the buildings exterior such as new main doors and landscaping as well as modernizing the buildings interior common areas by installing new light fixtures, painting the hallways a brighter color and replacing the old dark carpet would help improve the overall curb appeal and general perception of the asset.

The Net Result

The sale just closed and the owner is in the process of implementing our recommendations. We will post updates to this section as they become available.