Salmanson Capital seeks to acquire stabilized student housing assets across the United States that reside in markets with high barriers to entry, poses excellent locations and allow for us the ability to create value.
Findings from a cross market study, performed by Salmanson Capital of several universities around the United States, showed that when compared to student housing rental markets with similar demographics and product types, rents for off campus housing around Syracuse University were significantly lower than other markets.
As we continued to delve into the market, we learned that Campus Hill Apartments was clearly the leader, offering the best locations, unrivaled product, and highest level of management.
It then became clear that the Campus Hill Apartments portfolio housed the most affluent members of the student population and while being "the best" in the market, was operating at rents that were below market and failing to capitalize on the willingness for tenants to pay for enhanced quality.
Realizing the tremendous value of targeting a portfolio of this size as an off-market opportunity that would not bring the hurdles of competing on pricing, Salmanson Capital negotiated directly with the Family who had owned the property for decades. Salmanson Capital seeks off market transactions to avoid broker inflated pricing whenever possible. Sellers are willing to work with Salmanson Capital directly due to the fact that we are extremely easy to deal with, direct and honest. Salmanson Capital has the ability to close a large transaction in whatever time frame the seller chooses. Salmanson Capital can move as quick or be as patient as the seller desires.
Numerous sources were explored to obtain debt financing for the Campus Hill acquisition. During the time period of the purchase interest rates were at historical lows for short-term floating rate debt, and the opportunity to put high amounts of leverage on the properties was available in the marketplace. However, Salmanson Capital took a conservative approach, paying a slightly higher interest rate but locking in a conservative ten year fixed loan that has the ability to pre pay in years five through ten without penalty. Salmanson Capital looks to obtain long term conservative financing whenever possible to eliminate short term interest rate/market risk.
Salmanson Capital practices stringent underwriting. If the deal does not still work in a worst case scenario it is not a deal worth doing. On the Campus Hill portfolio, Salmanson was certain to account for potential increases in all areas. Additionally, potential increases in insurance expenses for more comprehensive coverage and a greater allotment for money to be spent on repairs and maintenance were adjusted into the acquisition price.
During underwriting Salmanson reserved capital to improve the quality of the properties through renovations and launched an advertising campaign with a new more modern logo and website to further enhance the Campus Hill brand. Salmanson Capital looked for ways to increase revenue upon the acquisition. Operational strategies that have been implemented to date include application fees for all leases, furniture rentals, pet fees and income from cable and internet service.
Our research of the market and understanding of the tenant demographics led to the realization that a large majority of the tenants would be willing to pay significantly more rent for a higher quality product. Salmanson Capital initiated a renovation campaign that includes the remodeling of kitchens with new floors, top of the line cabinetry and countertops, as well as stainless steel appliances. Additionally, bathrooms are completely renovated with high quality modern finishes and appliances. New fixtures, upgraded closets, high quality carpet, base boards, trim, and new paint are among many of the improvements that are made during renovations. To mitigate the risk of the large capital outlay for these improvements, all renovated units were leased at a higher rental rate prior to the beginning of construction. The demand for upgraded units exceeded the amount of upgraded units that was able to be supplied in the initial improvement period. Salmanson Capital serves the role of general contractor and has hired additional full time construction staff to reduce the expenses of the renovations. The return on the investment for these improvements has been stellar. An example of the cost and returns are as follows:
An average un-renovated 4 bedroom unit rents for $650 per bed per month. The capital expense to renovate such a unit is approximately $12,000. Upon completion of the renovation we are able to increase rents by $200 per bed/month, which is an additional $9,600 of rental income per year. Thus, we are realizing a return of 80% of our investment in the first year.
The acquisition of the Campus Hill Apartments portfolio has been a very successful venture. Being a highly involved asset manager, Salmanson Capital has driven the properties to realize rental rate increase of 30% since inception. Occupancy has remained at 100% since the acquisitions of the properties. Most importantly the cash on cash returns have achieved an average of over 25% per year during the first three years of ownership. New income streams have been created and expenses have been kept well below budget during underwriting. The brand name has become stronger in the market and the extensive improvements to properties has kept the portfolio well positioned to compete with new product that comes online and providing students with what they desire.
Learn more at the CampusHill Apartments' website.
