Multifamily Extreme Value-Add

Our initial pursuit of this 62 unit apartment portfolio – consisting of a 30 unit complex in New Brighton, PA and, just down the road, another 32 unit complex in Rochester, PA – began in 2017.

At the time, the apartments that weren’t already vacant and condemned were occupied by a scattering of long term tenants who had hung on through years of deterioration and mismanagement. Their new “neighbors” were really just occupants, mostly unsavory characters, and certainly not vetted rent paying tenants. These complexes were a blight to the neighborhood and a drain on the local municipality resources.

If the condition on paper and in the marketing materials looked dire, the in-person perspective was even worse. The advertised 64% occupancy rate was closer to 30% and the economic vacancy was even lower. The empty apartments were full of years of trash, drug paraphernalia, fire damage, and abandoned pets. It was clear that very little would be salvageable though overall the structural components appeared to have survived the neglect.

This deal had just the right mix of “potential” and disaster to keep the competition low, but our ambitions high. Rice Pegher was confident in our ability to mitigate the risk while providing great upside opportunity for the residents, the community, and our company & investors.

In 2017, this property was for sale by owner, but the asset was not well maintained and they were seeking a premium sale price of $2.4MM. We moved on after our initial underwriting didn’t pan out.

We saw the assets come on and off the market during the next several years, but it wasn’t until a fateful conversation with one of our trusted lenders in September of 2020 that it regained our attention. We connected with the listing Broker and set up an initial tour of the property, which was now listed for $1.75MM.

Given the extremely poor condition of the property and true economic vacancy (close to 30%), we successfully negotiated and were accepted at an offer price of $610,000 – quite a bit lower than the list price.

We immediately started securing the buildings and would encounter a myriad of obstacles ahead of closing, including pandemic-related delays, and seller-side delinquent debts that we had to negotiate directly with their lenders. After 10 months we were able to close in July of 2021 with a total loan amount of $1.908MM, inclusive of the purchase price and renovation funds. Work began immediately upon closing.

Building on lessons learned with other significant rehabilitation projects, we had an extremely detailed construction plan which enabled us to complete the work within 4% of our initial budget. The projects completed on a rolling basis with the 30 units in New Brighton in April 2022, and the 32 units in Rochester in December of 2022. We achieved the level of finish for the units that put them at the top of their respective markets, and thoroughly impressed the town officials and inspectors that had known these properties in the past.

Stabilization also occurred on a rolling basis with the first 30 unit complex in New Brighton finishing in October of 2022, and the remaining 32 units in Rochester wrapping up in November of 2023. Our in-house property management team rebranded the properties and took extra time and precautions to ensure we placed qualified tenants.

Once the 30 units were stabilized in New Brighton, we got a call from the Police Chief who shared that since we acquired and rehabilitated the Rivertown Apartments, crime reports in the entire community decreased by 20%!

All said, it took Rice Pegher 18 months to complete the turnaround of this 62 unit portfolio, and another 8 months to stabilize the properties. In Q4 of 2023, the fair market value of the assets indicates a 87% increase in value over this time period.