In August of 2018, CREC formed a joint venture with a Scottsdale-based multifamily operator to purchase Alterrra (FKA Los Portales), a 416-unit apartment community located in East Tucson, Arizona. The property was secured in an off-market transaction for approximately $96,000 per apartment, well below replacement cost.
At the time, owners of multifamily apartment communities within Tucson had benefited over the previous few years from a shortage of new housing in comparison to the population growth. RealPage reported that only 200 apartment units were completed in 2018, far less than the approximately 12,000 new jobs that the University of Arizona approximated had been added over the same period. This supply-demand imbalance was demonstrated by the market’s 7.5% year-over-year rent growth during the second year of CREC’s ownership, ranking Tucson the third highest rate among all markets in the United States, behind only Phoenix and Las Vegas, according to CBRE.
Alterra’s seller had previously spent $5.1 million addressing exterior improvements, deferred maintenance and renovating approximately 50% of the units. CREC’s business plan entailed capital improvements of $3.8 million ($9,000 per apartment), the majority of which was focused on the resident-facing/high-ROI components of completing the unit-interior renovations and further amenity upgrades. The business plan also focused on improving property management by decreasing operating expenses and increasing rental rates to match comparable properties.
Within two years of acquisition, approximately 100 of the apartments were renovated, turned over to property management and quickly absorbed at rates higher than the original projections. Asking rents achieved a $400 premium on the new renovations, equaling at 37% return on investment. The decision was made to discontinue renovations and leave the balance of the units unrenovated to provide the future buyer with an opportunity to implement its own value-add program. During the ownership period, the in-place Net Operating Income (NOI) grew by 125% relative to the trailing 12-month NOI at acquisition. CREC was able to take advantage of a favorable Tucson real estate market and sold Alterra Apartments in March of 2022.
- Asset Location: East Tucson, AZ (Tucson)
- 416-unit multifamily apartment community
- Investment Date: November 2019
- CREC Total Investment: $7.6 Million
- Investment Type: Multifamily acquisition
- JV Partner: Rincon Partners (“Rincon”)