“The key to success is often the ability to adapt.”
- Anthony Brandt
It has been a turbulent few months in the commercial real estate and debt markets, with interest rates rising in an attempt to control inflation. Since the previous quarter, we have been keeping a close eye on the residential and commercial markets, as well as the bond and treasury markets. We anticipate some expansion of cap rates for multifamily assets in the next 6 to 12 months as debt becomes more expensive for borrowers.
Rising rents could cause some headwinds
Rents have been and continue to rise, preserving valuations, but affordability will be the limit to future rent growth. We are looking at the rental rate and affordability inflection point, as this could cause some headwinds for future rent and valuation growth. The majority of our assets in our portfolio will strive for full market rents, putting them at top valuations when compared to comps. This is especially true of our high vacancy/fully vacant acquisitions, which allow us to lease the units out at full market rents as soon as the value add work is completed.
Leawood Apartments
South Lake Tahoe, CA
1/1 bed/ bath rehab
Rent at acquisition: $900
Target rent: $1,595 (just leased)
Rent increase: $695
View the rehab here
We remain very active in the market
Despite this, we remain very active in the market:
Pursuing potential acquisitions in strong markets where there is a scarcity of inventory (both current and in the pipeline), essentially putting a "floor" on rental rates.
Multiple projects are in the rehab phase, and we're dealing with supply chain issues, labor shortages, and so on.
Have multiple properties in the disposition phase by working with our broker network to list properties for sale and some sell off-market to strong buyers with clean terms.
Rent growth for both new leases and renewals continued to be greatest in Class A and B communities, which cater to higher-income renters; rent growth in Class C communities was slower. Our properties are primarily located in Class B and higher markets that have strong fundamentals and job growth.
Blackwood Apartments
South Lake Tahoe, CA
2/1 bed/ bath rehab
Acquired vacant
Rent pro forma: $1,425
Target rent: $1,950
View the rehab here
The Spruce Apartments - Acquired May 11, 2022
South Lake Tahoe, CA
Flite is pleased to announce that we have acquired the Spruce Apartments, a 100% vacant 12-unit apartment community nestled in the resort town of South Lake Tahoe, California and half a block away from our 13 unit property, Leawood Apartments, and across the street from our most recent acquisition, the 20 unit Blackwood Apartments. Again, working closely with a local broker and partnering with Clearwater Construction, a well established local contractor, we were able to beat out 7 offers and secure the deal for $2,160,000!
Investor Details
$2,160,000 purchase price
$900,000 capital raise (506b offering)
$50,000 minimum
8% preferred return
70/30 equity split
2 year projected hold
Projected Returns
38.9% projected IRR (Y1)
1.39X equity multiple (Y1)
23.3% projected IRR (Y2)
1.52X equity multiple (Y2)
20.6% projected IRR (Y3)
1.69X equity multiple (Y3)
See more details at our website below.
https://www.fliteinvest.com/properties-spruce
The Deland Apartments - Listed for sale
San Jose, CA
Flite is excited to announce that we have decided to list the Deland Apartments in San Jose, California. Deland Apartments is a 6-unit apartment complex with all one-bedroom units situated on a 6,458-square-foot lot. Each unit is approximately 550 square feet, and five of the six units have recently been renovated with new appliances, kitchens, bathrooms, and other features.
San Jose City College, Valley Medical Center, and Fruitdale Station are all within walking distance, and all major freeways are easily accessible. New developments in the area, combined with San Jose's consistently growing market, make this building an excellent investment for anyone looking to expand their portfolio. The subject property has been fully renovated and stabilized with market rents in almost all units, assisting in increasing cash flow while limiting maintenance costs.
We acquired this property in May 2020 for $1,550,000 and currently listed for $2,398,000.
Investment Highlights:
5 of 6 Units Fully Renovated
New Appliances, including Dishwasher
New Washer and Dryer
Dual Pane Windows
Stabilized Rents (increased rents at an average of $491)
Close Proximity to All Major Freeways, San Jose City College
Walking Distance to Downtown Willow Glen
See more details at our website below.
https://www.fliteinvest.com/properties-deland
Real Estate Investing Real Talk - New episode added!
In this episode, Tyler (a fellow Flite Investor) and Sherwin chat about the concept of merging Real Estate Investing with the Crypto world! They chat with Kenny Schumacher (a fellow Flite Investor), founder of Closin, which is an investing platform built to tokenize real estate, allowing investors to buy fractional shares of property.
Topics we cover in this episode:
Why is there a need to bring real estate and crypto together?
What’s the minimum investment?
When is cash flow distributed?
What are the returns?
What’s the difference between Closin and Fundraise or RealtyShares?
Can anyone invest?
Learn more about Closin and connect with Kenny at: https://closin.com/
Enjoy the episode! And don't forget to SUBSCRIBE ► https://bit.ly/328t2UG
Market Activity
We continue to see strong buyer interest in multifamily and self-storage properties in core markets (such as Sacramento) and have ample capital to deploy. We are also seeing price softening in tertiary markets and areas with much higher inventory growth, both of which Flite does not invest in. When it comes to putting their money in a vehicle that can not only generate yield but also preserve capital during a downturn, the volatility of the stock market and high inflation make real estate a safer bet.
Strong, existing relationships will play a role in the future growth of Flite and our investors in the coming recession. This includes relationships with brokers, lenders, and other commercial real estate players. A downturn in the economy can be stressful for many people, but as history has shown, it can also open up many opportunities for great investments.
Feel free to connect
We would like to thank our investors for their continued support and trust in us. Our investors can access their latest Flite Quarterly Investor Report on the investor portal.
Please don't hesitate to contact us if you want to catch up, talk about investing, or anything else.
Regards,
The Flite Team