Safeguarding Capital Through Strategic Multifamily Investments

Phoenix Equity Investment Group’s core mission of protecting our investment partners’ capital begins with our sole focus on multifamily properties. The firm’s strategy focuses on improving Class B & C apartment communities in secondary and tertiary markets nationwide. Historically, multifamily has been the least volatile real estate asset class during downturns while still offering strong upside potential during upcycles. Within multifamily, Class B & C provides one of the most attractive investment opportunities due to the imbalance between the strong and growing demand and limited new supply of these units.

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Acquisition Criteria

The following criteria are used to identify undervalued multifamily properties for acquisition, value optimizations, management, and disposition.

Market Segments

Age: The 18-35 year old market segment is 22% of the U.S. population.
Income: Renters who earn $40,000 or more annually.
Price: Where rent is 30% or less of the median income.
Retiring Baby Boomers: Scaling down and enjoying maintenance-free multifamily living.

Property Criteria

Multifamily Residential Apartments: Focus on multifamily residential apartments.
Pitched Roof Construction: Preferred construction type.
Occupancy: Above 80%, with the exception of properties that require renovation, provided they are well-located and present value-add opportunities.

Target Values

Size and Price: 50+ units in the $4MM – $50MM range.
Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage ratio of 1.25.
Type: C- to B+ properties located in C- to A areas.
Property Vintage: 1975 or newer.

Location: Emerging market areas with indicators for strong near and long-term economic growth.

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Emerging Markets

Choosing the “right” multi-family apartment complex to acquire is a critical aspect of Phoenix Equity Investment Group’s investment strategy. We are diligent in our exploration and focus on opportunities in emerging markets, where jobs and local economies are expanding.

Emerging Markets Are Characterized By:

People moving in, rather than leaving the area.
Jobs being created and moving in rather than lost.
Rents and property values rising.
Local government dedicated to attracting jobs.
Markets starting to absorb oversupply.

There are many indicators and a lot of research that goes into identifying an emerging market in the US. We start by performing thorough market research that includes the following areas:

Job Growth Report
Population Growth
Path of Progress Reports
Local Economic Reports & Trends
Chamber of Commerce Reports

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Acquisition Practices

Phoenix Equity Investment Group takes pride in building relationships with local listing brokers to get their “pocket listings” and access to other Bank Owned Properties (REO). Our searches include soliciting owners directly instead of waiting for properties to come to market. Each asset undergoes a thorough due diligence process to confirm the physical and legal status of the property and to confirm valuations to ensure achievable investment strategies. Early in the asset evaluation phase, the debt and equity financing strategy is developed based on a number of factors such as property type, magnitude of renovations, expected hold period, and investor objectives. Each asset is typically held for 5-10 years depending on its exact business plan.

Investment Discipline

Asset selection involves a systematic, routine evaluation to identify favorable demand characteristics, such as job and population growth, demographic shifts, supply absorption rates, and positive local legislation. Markets with supply constraints receive the most favorable underwriting. Markets with signs of oversupply, such as surplus land, changes in zoning, and increases in building permits, are avoided.

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Value-Add Strategy

Think of it as a business rather than a building. The more income it generates, the more it is worth. When we purchase an apartment complex, we are looking for specific opportunities to increase the cash flow in different areas. These are called “Value Plays” or “Value Adding Components.”

Value Plays We Capitalize On

Mismanagement caused by owner self-managing
Poor supervision of management companies
Deferred maintenance
High vacancies
Below market rents

Examples of Value-Add Plays We Implement at Phoenix Equity Investment Group:

Improve curb appeal by enhancing landscaping, adding dog parks, carports, etc. Residents will pay more when a property is in better condition and has amenities.
Purchasing a property that is 10% or more under current market rents. This gives us the opportunity to increase rents and immediately increase the value of the property.
Implement a water and sewage bill-back system to charge the residents for actual usage. Most apartment owners pay for all the water. When we bill back the residents, it helps offset expenses and increase the cash flow. Through this system, residents tend to become more frugal and will decrease overall operating expenses.
Improve unit interiors with new paint, appliances, countertops, and floors.
Adding a coin laundry facility to the complex.

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