FOUNTAIN VALLEY

Key Deal Facts:

• 88-unit property acquired off-market
• Fixed-rate, 10yr construction financing obtained via relationship with local bank
• Purchased for $16.45M in 2022
• Value-add business plan (physical renovations and improved management)
• Achieving proforma post-renovation rents w/o having to spend the full capex budget

Value-Add Strategy

Although the building suffered from years of deferred maintenance (including unaddressed fire damage), the underlying quality of construction was high, and the floorplans were very desirable in this submarket. Some big-ticket exterior renovations were needed to preserve the asset and increase its curb appeal. These included a new roof, rebuilding staircases, and modernizing the clubhouse and rental facilities. Interior renovation scope would be decided on a unit-by-unit basis, as vacancies came up, depending on market conditions.

CCG used a longstanding property management relationship to not only improve the entire operation but also to directly project manage all of the renovation projects, using their excellent long-term relationships with key subcontractors who would get the work done on time, on quality and on budget.

Financing Strategy

CCG avoided capital market broker fees by presenting the deal to a local bank with a longstanding relationship with CCG, that was able to provide highly competitive financing: a 10-year “mini-perm” construction loan with a fixed interest rate of 4.4% and three years of interest-only payments, at 62% leverage. This loan included $1.6M to fund capex 100% of the renovation costs.

Exit Strategy

The desirable location and floorplans, combined with favorable market conditions, enabled CCG to surpass the original projections, and achieve proforma rents without having to complete the full scope of interior renovations planned for the units. This trend is holding steady through changing seasons and market conditions, which is a reflection of CCG’s effective asset management strategy.

All exterior renovations will be completed Q4 2023 and the interior renovations will continue through 2025. At that point, CCG plans to use supplemental financing to return capital to investors. Due to consistently strong performance, CGC plans to hold the asset for the full 10-year term of the senior debt and eventually capitalize on the appreciation and the full value-add business plan via an exit or recapitalization.