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Conversations | Q4 2022 Review and Q1 2023 Outlook With Scott Lebenhart

February 6, 2023

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By: Evan Polaski, Investor Relations Managing Director

Evan Polaski:

Hi, I’m Evan Polaski, managing director of Investor Relations with Ashcroft Capital, and back with us today is Scott Lebenhart, Ashcroft Capital’s chief investment officer. Today, we really want to touch on a Q4 recap and a Q1 outlook for our past and future acquisitions. We’ll jump right into it. Thank you for joining us today, Scott. 

Scott Lebenhart:

Thanks for having me, Evan.  

Evan Polaski:

Very grateful to have your time and share some of your insights with our investors. Why don’t we start with Q4 and look back at what we bought, how many deals we had underwritten throughout, and what the acquisition pipeline looked like? 

Scott Lebenhart:

Absolutely. Given the volatility in the market, the pipeline significantly decreased from where we were in Q4 2021. That was a robust period. We closed seven deals in the fourth quarter of 2021. In 2022, during the fourth quarter, we closed two deals that we’re extremely excited about. These were deals that we targeted specifically. We closed on Halston Paces Crossing in November. This deal is in Atlanta. It was a loan assumption deal with a fixed interest rate at 3.25%. It was over 200 basis points lower than current rates. We were already familiar with the submarket, because it was the fourth property that we had purchased in Gwinnett County in Atlanta. We were excited to get that one done.  

Then, we closed Midtown 501 right before the holidays. That deal is in Chapel Hill. It is in an A++ location, with very minimal deferred maintenance, a light value add strategy, and tons of operational upside. It’s a deal that was owned by a group that we have worked with several times in the past. We have bought several deals from them before, so we knew how they operate and how we could improve the value from the get-go. So, those are two fantastic deals that we were able to get our hands on and make sense of. We found a meeting of the minds at the right price—or what we believed to be the right price—but, overall, the acquisition market was much slower. We underwrote about 50 deals in Q4. That’s about 50% of the deals that crossed our desk. And, of deals that we were actually pursuing, we only submitted seven LOIs in the fourth quarter—and that’s dating back to when we would submit seven LOIs in a week based on some of the heavy volume that we saw over the past couple of years. Things are definitely slowing down in the market, but we’re still able to find the right deals and sellers who are willing to sell at today’s pricing.  

Evan Polaski:

Looking back at Q4, not only the deals that we acquired but even the deals that we were underwriting LOIs issued, how were we finding those deals? Were those mostly off-market? Was there a balance of off-market and on-market? What efforts were we making on that front?  

Scott Lebenhart:

It was a balance, and at the end of the day, we always say real estate is a relationship business. We try to position ourselves to be the group that people want to work with and want to sell their deals to. That really came to fruition in the fourth quarter when our reputation and level of trust helped us get the deals done. Paces Crossing was a true off-market deal that we were able to get a look at from a seller who we knew wanted to sell out of certain deals in their portfolio. They bought the deal in 2018 and refinanced out of it in 2021—or, refinanced out their equity in 2021—which gave us the ability to assume a 2021 loan with a lot of interest only remaining. We were able to convince them to sell at a price that made sense for us just because they were looking to. They didn’t know where the world was going, and they said, “We’re done with this one, and we’ll move on.”  

Midtown 501 was a deal that was marketed. However, we had bought two other deals previously from the seller. We knew them well. We were able to negotiate with them directly. Given the level of comfort that they had with us, they wanted to close before the end of the year. We wanted to close before the end of the year to allow investors to benefit from certain potential tax advantages. We were able to get the seller comfortable with moving forward with us at a discounted price compared to the other groups.  

We’re continuing to have conversations with groups that we know and are trying to price some deals away from them. We‘re doing an intense amount of research right now. We did a lot of research back in Q4 wherein we targeted quality deals at specific locations. We have our databases in which we’re able to search when deals were purchased and what type of loan structures they have. Those are the deals for which we’re approaching sellers and saying, “Hey, we know you bought this in 2018. You have your debt maturing next year, et cetera, et cetera.” For the people who bought then, even though the market is in some turmoil right now, they’re still making money on their deals and perhaps incentivizing them to negotiate and decide that we’re the right buyers for it, that we will make it nice and smooth. Right now, we’re doing a lot of targeted approaches on our deals to drum up deals off-market. 

Evan Polaski:

In terms of the actual deals themselves, you talked about targeting a much more specific type of deal through research. Are there changes in the general focus of the type of risk profiles or anything along those lines that we’re looking at today, kind of like Q4 starting to blend into future looks or looking for it relative to the end of 2021 or early 2022? 

Scott Lebenhart: 

I’d say it’s more of a narrowed focus where certain quality deals make a lot of sense right now versus others. Loan assumptions make a lot of sense because it takes one of the most uncertain and volatile components out of the deal by having an in-place loan that you can assume. Right now, lighter value-add deals make a lot of sense with limited deferred maintenance. Historically, [at] the beginning of 2022 and beyond, there was plentiful debt out there that was willing to fund future CapEx projects. Right now, we’re able to be selective and lean on some of our relationship lenders for loans like that. But if you’re going with an agency loan or some type of fixed-rate product, the cost of those deferred maintenance items and the cost of the renovation, that’s coming out of equity, which is obviously more expensive than debt. This is why people put debt on their property. This is straining the ability to project some decent returns on certain deals.  

Deals that are in great shape are targeted more. We are not looking for super heavy lifts right now. We’ve made a lot of great acquisitions in the past that are heavy lifts, but right now the environment is not conducive to that. We’re also really focused on the potential of a recession in 2023. We’re looking at recession resistant locations with highly ranked school systems, great access, and diverse employment drivers in the area. So that’s another factor that we’re focused on at the moment.  

Evan Polaski: 

With everything we mentioned in terms of how we’re sourcing deals, the types of deals that we were focusing on both Q4 and forward, how do we see that continuing to evolve, or what areas are we focusing on more heavily given the information we’ve received over the last three months?  

Scott Lebenhart: 

I think that in Q1 we will continue to be extremely selective on the deals that we’re targeting from an acquisition projection. Unfortunately, we still expect limited transactions to occur in the first half of 2023. We’re going to continue to be disciplined and make sure we’re buying the right deals at the right price. And a lot of that goes into what I was talking about in Q4, how we’re targeting specific deals in specific locations. That’s going to be where we continue to focus. We will also continue to have conversations with the groups and the potential sellers out there that we’ve worked with in the past in order to try to pry some deals away from them later in the year toward the second half of 2023. We do expect there to be more transactions.  

We expect there to be some deals that happen in Q1, which helps create data points and the bid/ask spread becomes a little narrower. Hopefully, there will be some more stabilized stabilization in the debt markets. The belief is that by midyear the rate increases will come to a halt and even potentially by the end of the year start to decrease. So there should be more clarity on that front.  

We also believe toward the end of this year, there’ll be some more distress in the market. We’re going to see sellers that have debt maturities coming up and have rate cap purchase obligations to fulfill and cash flow being drained from properties based on higher-than-expected debt service. We expect those deals to start to come out in the second half of the year. Right now, it’s a lot of positioning with the groups that we believe will have those opportunities for us throughout the year and staying true and making sure we’re buying safe, conservative deals in strong locations. 

Evan Polaski: 

How are we then making sure that we’re not in a similar pinch if rates don’t drop like they’re anticipated to in the next few years? How are we adjusting our financing structure and overall deal structure accordingly?  

Scott Lebenhart: 

A lot of that is being proactive with our existing deals. We’re being extremely proactive. We’re having conversations with lenders today. I actually just double-checked a couple weeks ago to confirm that there were no loans maturing in 2023, and this was triple-checked the other day to make sure we didn’t miss anything. We have no loans maturing this year, which is fantastic. We have no reasons that we need to sell deals. May we want to sell a couple of deals this year? Absolutely. But those are probably deals where we have already been able to implement our value-add strategy. So it’s not going to be a deal that we bought six months ago that we’re looking to sell out of this year, but we are having conversations with lenders in terms of future rate cap obligations that we have.  

We are extremely focused, as always, on operations and making sure that our expenses are in line with where they should be and not running up. We are focused on maintaining extremely strong occupancy on the construction side. We are still seeing plenty of demand for our renovated product, renovated units, and our properties that we’re repositioning in the market. As we’re getting into a recession, there’s usually a sense of some sort of flight to quality. People with higher average incomes, like the markets that we’ve been buying, tend to live in those quality locations, perhaps at a slight discount to where they would’ve been at a stronger economic time. So again, we’re focused on these strong submarkets a lot right now.  

Evan Polaski: 

I appreciate all of your input, and I’ll leave it to you if you have any other closing remarks that you’d like to add before we part ways.  

Scott Lebenhart: 

It has been an interesting year. As you know, I think the world has a lot of sorting out post-COVID-19. Hopefully, supply chain issues figure themselves out. Inflation seems to be starting to get under control and trending in the right direction. Last year was a tale of two halves, where the first half was all rosy and the second half was, “I have no idea what’s happening.” We saw that after COVID-19 in 2020, [there was] a ton of uncertainty, obviously for different reasons, but we relied on our relationships in the summer of 2020. We closed three deals at the end of 2020 that we were able to tie up throughout all that uncertainty. Those deals were potentially some of the better deals that we’ve done. Ultimately, they were deals that we were able to buy from groups that knew us, felt comfortable selling to us, and knew that we would execute and close. We expect now to be similar to that period of time, where people are going to want to de-risk themselves during the sales process as well. We’re looking to put ourselves in a strong position.  

So the beginning of 2023 continued with uncertainty. Hopefully, we will have some more clarity by the end of 2023. We’re excited to see what the year has in store for us. We’re awaiting some more surprises, so we’ll say. 

Evan Polaski: 

I think over the last three years, 2020 through 2022, uncertainty is the only certainty. I appreciate all your time and insights and, as always, am grateful to you for sharing your thoughts with us.  

Scott Lebenhart: 

Great. I appreciate you having me. Thanks Evan. 

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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The Triangle Helps Shape the Growth in Raleigh

January 31, 2023

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By: Ryan Wynkoop, Investor Relations Manager

Since the pandemic, midsize cities with tourist resilient economies are growing.  Raleigh is one of those areas experiencing record job, population, and economic growth. In 2022, Raleigh was ranked as the 6th best place to live in the United States and 1st best place to live in North Carolina based on the 150 metro areas analyzed.[1]

As the capital of North Carolina, Raleigh brings thousands of state government jobs to the area and boasts a 7,000-acre Research Triangle Park (RTP) that provides 55,000 jobs to residents at more than 300 companies. Additionally, the region boasts numerous opportunities in higher education, with colleges such as Duke University, the University of North Carolina at Chapel Hill, Wake Forest, and North Carolina State University, all located within the major metropolitan area. 

The submarket is known for its highly educated workforce, warmer climate, and bustling nightlife, making it one of the top midsize cities for multifamily investment in the United States. 

 

Population Growth  

The pandemic has demonstrated that many industries are able to not only sustain a remote workforce, but also to grow in spite of one. Modern day collaboration tools have allowed people to work together effectively, even from disparate locations. As a result, people are leaving larger, more expensive cities, like New York and Chicago, and relocating to midsize cities, like Raleigh.  

This is especially true for technology jobs, of which Raleigh is no stranger, laying claim to the largest research park in the United States. Historically, Raleigh has also been among the most inexpensive technology hubs in terms of median house prices in the U.S.[2] Nicknamed ‘The City of Oaks,’ the downtown streets are lined with mature trees, and the greater metropolitan area is home to almost 20,000 sq. ft. of green space per capita.[3] The temperate climate, along with proximity to both the mountains and the beach also acts as a major draw. 

In ten years, Raleigh’s population of 400,000 has risen by 15 percent, and the state has seen the third highest migration, behind Florida and Texas.[4] The Raleigh metropolitan area is projected to grow from 1.4 million in 2022 to 2.6 million in 2060. In addition, the projected growth will rank 11th among 384 U.S. metro areas.[5] 

This huge population surge drives up wages and the demand for services, ushering in job and economic growth, and helps to create multifamily investment opportunities.

 

Job Growth 

A growing population is primarily supported by the employment opportunities in the area. In 2022, exponential job growth in Raleigh ranked the city as the third-hottest job market out of 300 metro areas in the country. This was based on job, labor-force and wage growth, labor force participation, and unemployment rate.[6] Raleigh’s unemployment rates are lower than the national average, and the region’s annual average income is similar to the national average. The shift away from major metros, availability of technology jobs, and opportunities in higher education have all helped fuel this growth. 

Research Triangle Park (RTP), the largest research park in the country, is a major economic driver with industries spanning technology, life sciences, manufacturing, and finance. Stretching over 7,000 acres, RTP is home to more than 300 companies that employ over 60,000 people. Even during the pandemic, when many physical locations shut down, Raleigh witnessed strong demand for office, life science, and lab space. More than a dozen major companies have relocated or announced expansions – this includes a new Apple campus, a Google engineering hub, and Fidelity adding 1,500 jobs at RTP.  

Over the next few decades, North Carolina is expected to grow its economy by more than $209 billion, with fifteen big businesses announcing their arrival in the last year, leading to the creation of 20,000 jobs over the next few years.[7]  

These continued corporate expansions and relocations have spurred job growth and helped to create a more affluent demographic, making Raleigh one of the top submarkets for multifamily investments.  

 

Economic Growth 

With employment expanding and the population growing to catch up, overall economic growth is never far behind. The Raleigh region’s economy is supported by its large talent base and highly educated workforce, which has attracted billions of dollars of corporate investment over the last decade. The many major local universities produce thousands of graduates every year, many of whom enter the local workforce. After earning a bachelor’s degree, nearly 80% of UNC graduates remain in North Carolina.[8] In fact, higher education supports so much of the growth and is so embedded in the area that Duke, UNC, and NC State are collectively known as ‘University Triangle.’  

All these factors have contributed to Raleigh becoming the 7th fastest growing housing market in the country. It has also supported rental housing, with prices remaining up 4.8% year-over-year, even as rising interest rates and an economic slowdown has cooled off demand in other markets.  With a median price of $1,487 per month for a one-bedroom apartment, vacancies remain quite low compared to the last five years.[9]  

Steady job, population, and economic growth all contribute to Raleigh’s investment appeal and help ensure long-term growth in housing demand and rents. 

 

Ashcroft Capital and Multifamily Investments 

At Ashcroft Capital, we have a proven track record of creating value through renovating, rebranding, and repositioning our investment properties. We buy existing cash flow-positive, institutional-quality properties in high-growth markets with strong multifamily fundamentals. 

 Our acquisitions team works closely with our talented asset management, property management, and construction management groups to formulate a unique business plan for every property acquired. The collaboration of Ashcroft’s fully integrated platform enables us to quickly execute the property’s business plan upon acquisition. 

 The Apartments at Midtown 501 (Midtown 501) is the first acquisition within the Ashcroft Value-Add Fund III. Midtown 501 includes 248 units and is located in the Chapel Hill submarket of Raleigh. Midtown 501 was built in 1975; however, an extensive transformation of the property was completed in 2015. The renovation fully modernized the amenities, units, and physical attributes of the property, leaving only minimal deferred maintenance. Midtown 501 provides Ashcroft the opportunity to focus efforts on operational improvements, maximizing income through minimal interior and exterior luxury upgrades.  

 Our other communities are located in some of the highest-growth markets within the Sun Belt, including: Dallas-Fort Worth, Atlanta, Orlando, Tampa, and Jacksonville.  

 

Ashcroft Capital’s Real Estate Fund 

Real estate funds like the Ashcroft Value-Add Fund III (AVAF3) differ from other syndications by investing in multiple properties rather than a single deal. The fund is structured so that investments are allocated across multiple properties, creating diversified sources of return. 

AVAF3 is an open private placement fund for accredited investors interested in diversifying their retirement and wealth portfolios into multifamily real estate. Investors can invest in Class A and/or Class B Limited Partnership Interests. The AVAF3 is targeting 6-10 multifamily properties throughout the Sunbelt region with an anticipated lifespan of 5-7 years. 

AVAF3 offers both Class A and Class B share types. An investment in Class A shares earns a 9 percent coupon, generating strong projected cash flows while reducing risk. Upon disposition of a property in the fund portfolio, Class A shares offer limited distributions in exchange for the higher coupon rate. Class B shares earn a 7 percent coupon; however, Class B shareholders have greater overall return potential through their participation in the disposition of fund properties.  

Invest in AVAF3 here.

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Sources:

1. Raleigh & Durham, North Carolina, U.S News Best Places. usnews.com™. (n.d.). Retrieved December 2, 2022, from https://realestate.usnews.com/places/north-carolina/raleigh-durham 

2. Forget Austin and Miami: 3 up-and-coming tech hubs with more affordable home prices are luring droves of new residents from nearby areas. businessinsider.com™. (n.d.). Retrieved December 6, 2022, from https://realestate.usnews.com/places/north-carolina/raleigh-durham

3. North Carolina has 2 of the 50 cities with the most green space per capita. stacker.com™. (n.d.). Retrieved December 6, 2022, from https://stacker.com/north-carolina/north-carolina-has-2-50-cities-most-green-space-capita  

4. Data shows NC population boom the nation’s third-biggest jump over year span. wral.com™. (n.d.). Retrieved December 6, 2022, from https://www.wral.com/data-shows-nc-population-boom-the-nation-s-third-biggest-jump-over-year-span/20369530

5. Raleigh, NC Will be Among the Fastest Growing Cities by 2060. thecentersquare.com™. (n.d.). Retrieved December 5, 2022, from https://www.thecentersquare.com/north_carolina/raleigh-nc-will-be-among-the-fastest-growing-cities-by-2060/article_3eaa64b7-8c9f-58b3-a4d3-4f4ec3d7fcc2.html

6. The Best Job Markets Aren’t in the Biggest Cities. wsj.com™. (n.d.). Retrieved December 2, 2022, from https://www.wsj.com/articles/best-cities-job-market-2022-11650639572

7. Raleigh’s job market ranked as one of the hottest in the country. abc11.com™. (n.d.). Retrieved December 1, 2022, from https://abc11.com/raleigh-job-market-hottest-markets-fidelity/11804879

8. Did You Know? Most UNC System Grads Stay in North Carolinajamesgmartin.center™. (n.d.). Retrieved December 5, 2022, from https://www.jamesgmartin.center/2019/09/did-you-know-most-unc-system-grads-stay-in-north-carolina

9. Raleigh Rent Report: December 2022. apartmentlist.com™. (n.d.). Retrieved December 5, 2022, from https://www.apartmentlist.com/rent-report/nc/raleigh

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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How Strong Broker Relationships and Off-Market Transactions Can Benefit You as the Investor

January 26, 2023

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By: Danielle Jackson, Investor Relations, Senior Manager

When an investor wants to add real estate to their portfolio, there is a wide range of investment opportunities they can select from. Among the hardest to access is an off-market transaction, which involves a commercial or multifamily property being bought and sold without the property ever being listed on the market. It can take years to develop the strength of relationships with brokers to secure visibility to off-market opportunities. This is a key benefit to investors when working to find the right operator to invest with.[1]

 

What Are Off-Market Transactions? 

Off-market transactions occur when a buyer and seller negotiate the sale of a property without it being placed on the market. Because the seller doesn’t create a listing agreement, it can be challenging for potential buyers to source off-market properties without having strong broker relationships. In most cases, off-market transactions occur for two possible reasons. 

The first involves a company or organization searching for commercial property and working with a real estate broker who has the connections needed to identify off-market opportunities. The second is situations where the property owner might want to sell without listing it on the open market. 

With the help of a real estate broker, negotiations can take place between the seller and buyer to facilitate a mutual agreement on key terms before drafting an official contract or purchase agreement. 

Keep in mind that off-market commercial properties aren’t listed anywhere. Many buyers mistake off-market commercial properties to simply mean they aren’t listed online. The truth is many off-market conversations begin before the properties are even available for sale.  

Off-market transactions have been completed for decades. However, they have become increasingly popular over the past few years because of increased market competition.  

Most in the investment community are aware of off-market transactions but don’t have the relationships to source these opportunities.

 

Benefits of Off-Market Transactions 

There are many benefits associated with off-market transactions, the primary of which is these transactions can be performed in a streamlined manner. Off-market transactions don’t require as much lead time for the seller because there is no listing agreement. Buyers who have sourced off-market deals are generally extremely motivated to finalize and close the deal, and depending on the situation, sellers may be more willing to negotiate the terms of the transaction.   

Many if not most sellers have some real estate investment experience and aren’t interested in considering every offer made on the asset they are trying to sell. Off-market deals are heavily marketed to a core group of potential buyers, but there will be less competition among a smaller buyer pool, making a bidding war less likely. As a result, the buyer may acquire the asset at a more favorable price. 

Every transaction and seller has its own unique set of circumstances. Market environments may force an early exit for the seller, investment strategies may change, or personal affairs may require a sale. Whatever the reason for the sale of a multifamily asset, it generally creates a more ideal investment opportunity than a listed property.  

The right approach when sourcing off-market deals may provide buyers with more time to perform the necessary due diligence. In cases where the property is listed on the market, many unqualified buyers can access the deal and make offers, which expedites proceedings. When a piece of commercial real estate is kept off-market, the buyer has more time to complete the due diligence and investment underwriting process before sending an offer to the seller.[2] 

Many commercial property owners want to keep the sale of their property out of the public eye. Whether they want to make sure that current tenants aren’t too frustrated before the sale goes through or would like to keep employees from becoming concerned about the state of the business, commercial property owners may be more inclined to keep a property off-market compared to residential homeowners. Engaging in an off-market transaction may preclude unnecessary roadblocks or issues that can delay or even terminate the deal.

 

How Closing Costs Differ from an On-Market Transaction 

Closing costs on real estate transactions typically range from 5 to 6% of the total sale price for the property. In most cases, the buyer is responsible for paying the majority of these fees. With an off-market commercial transaction, the seller is usually able to complete the transaction without assistance from a listing agent, which may potentially reduce closing costs by 2.5 to 3%. Standard buyer closing costs include the following:

– A mortgage application fee
– Attorney fees
– Credit report fee
– Loan origination fee
– Home inspection and appraisal fees
– Title transfer taxes
– Insurance payments

Sellers who are involved in an off-market real estate transaction may be tasked with paying for the following: 

– The buyer’s agent commission, which is applicable even if the buyer uses the assistance of a broker
– Any concessions that the buyer requests
– Attorney fees in some situations
– Home appraisal fees
– Title transfer taxes
– Title insurance policy
– Potential funds toward the buyer’s closing costs

The seller may be able to avoid paying marketing fees because the property isn’t set to be listed on the MLS. Because there isn’t usually an ample amount of competition in off-market transactions, the buyer often attempts to reduce closing costs during negotiations with the seller. 

 

Pursuing Off-Market Deals with Ashcroft 

Multifamily and commercial demand remains strong year to date. The strong demand coupled with short supply means on-market transactions may result in a bidding war and potentially push the purchase price over market value. Ashcroft has spent years developing strong and meaningful relationships with industry peers, which has proven to be invaluable when sourcing off-market multifamily deals.[3]

Of the 11 properties that Ashcroft acquired in 2021, eight were completed off-market as a result of the broker relationships we’ve cultivated over the years. These relationships coupled with our market reputation position Ashcroft with a strong competitive advantage when identifying and potentially acquiring off-market multifamily properties.  

Off-market transactions have allowed buyers to find properties at reasonable prices for many years. When partnered with an experienced investment firm that has strength and depth of relationships, finding off-market transactions may be even simpler.  

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Sources

1. RealEstateU. (2019, July 8). Home. Real Estate U. Retrieved September 9, 2022 from https://www.realestateu.com/9-tips-for-doing-successful-off-market-transactions/ 

2. Corley, D. (2013, May 27). On-Market vs. off-market transactions. MW Real Estate Group. Retrieved September 9, 2022 from https://mwrealtyla.com/on-market-vs-off-market-transactions 

3. Rohde, J. (2021, June 18). 4 little-known ways investors find off market properties. Stessa. Retrieved September 9, 2022 from https://www.stessa.com/blog/off-market-properties/ 

 

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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What is the Ashcroft Value-Add Fund III?

January 24, 2023

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By: Travis Watts, Director of Investor Education

Today I want to discuss what the Ashcroft Value-Add Fund III “AVAF III” is, how you can potentially benefit from it, and the key differences between previous funds offered at Ashcroft Capital. 

AVAF III is a 506(c) real estate private placement investment opportunity for accredited investors. The fund is closed-end, which means once we raise the capital needed to acquire six to ten multifamily properties, the fund will be closed with no further properties or investors entering after that point. AVAF III is being offered on a first-come, first-served basis.  

The objective for the fund is to acquire six to ten multifamily apartment communities in high-growth and high-demand Sun Belt markets (currently Texas, Florida, Georgia, and North Carolina). Once we acquire an apartment community, we renovate, rebrand, and reposition it for resale. In other words, we are buying preexisting multifamily apartment communities and modernizing them to make them more efficient and to appeal to today’s renter standards. 

We target to hold these properties for five to seven years, and throughout the hold period, we offer investors monthly cash flow distributions and provide monthly updates. We also release full detailed financials every quarter.

A couple of new, exciting updates on AVAF III that differ from AVAF I and II are as follows:

First, we launched this fund earlier compared to prior years. Historically, we have opened our funds for investment around January or February. In late 2022, we were able to get the first property for AVAF III under contract, and investors who got in early were able to benefit from the last year of 100% bonus depreciation. The bonus depreciation benefits are set to phase out over the next several years:

80% in 2023

60% in 2024

40% in 2025

20% in 2026

0% in 2027

Another exciting update is that we are offering investors preferential terms for investing larger amounts of capital. For example, in AVAF I and II, whether someone invested $25,000 (our minimum) or $1 million both investors had the same terms. A “coupon” is paid 100% to investors first, and then there is a 70/30 split on profits above the coupon rate up to a 13% IRR return and a 50/50 split thereafter.

In AVAF III, we are keeping the minimum investment low at $25,000 with the same split structure as before, but if you invest $100,000+, the split above the 13% IRR hurdle is improved.

See below for details:

Note that the splits shown above are applicable to the Class B shareholders participating in the appreciation and potential upside, not to the Class A shareholders. Class A investors receive a higher coupon amount at 9% annualized versus 7% and have limited to no upside on the equity appreciation.

The next difference in AVAF III is that we are starting to see discounts happening in the multifamily sector because of increased interest rates. We are transitioning toward a buyer’s market, rather than a seller’s market. The first deal that we closed in AVAF III (Midtown 501) was purchased at an approximate 25% discount relative to pricing one year ago in 2021. The current market shift creates a unique buying opportunity with a potentially small window of time to purchase multifamily assets at discounted prices, potentially throughout the year.

More exciting news is that we are expanding our markets with AVAF III. Midtown 501 is in a fantastic submarket of Raleigh–Durham, North Carolina. Historically, we have bought properties in Texas, Florida, and Georgia, and now we can offer investors even broader diversification by expanding into more Sun Belt markets.

Our top priority at Ashcroft is capital preservation, meaning we will maintain strong property-level operations on each asset in the portfolio and focus all of our efforts on continuing this success in 2023. It is not only activity that we seek but also great assets at appropriate pricing. Good opportunities will present themselves, but we feel it is critical to remain disciplined and patient. And we believe the next 12 to 18 months will present great opportunities. Many economists predict that it is more likely than not that there will be some distress in the market. As owners seek liquidity and the bid-ask spread tightens, we foresee a window of opportunity to take advantage of some compelling acquisitions, and we will do so with a careful, highly selective approach. With all of this in mind, we are thrilled to bring you AVAF III. To learn more or get started now, please visit https://info.ashcroftcapital.com/fund.

 

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Fixed Interest vs Floating Interest Rates

January 20, 2023

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By: Danielle Jackson, Investor Relations, Senior Manager

There are many factors when structuring debt that can impact debt servicing costs and, therefore, net operating income. Some investors might look for loan structures that provide flexibility for the duration of their hold. When acquiring commercial real estate, syndicators base their decision on financing structure by the asset type, estimated holding period, and investor .

Fixed rate loans yield fixed monthly mortgage payments and can provide a hedge against volatility. Because the rate is locked in, investors are assured that any inflationary effects on rates are risks that will be borne by the lender during the life of the loan. Additionally, in periods of rising market rates, a fixed rate loan can provide cost savings.i, ii

On the other hand, fixed rates are typically 1.5 to 2.0% higher than floating rates as the higher margin allows lenders to hedge future market fluctuations and account for all potential risks. On a $10,000,000 debt, this higher fixed rate means paying an additional $150,000–$200,000 each year. Fixed rate loans also can become costly in a climate where interest rates are falling. For example, a borrower may be locked into a fixed interest rate of 8% even though market rates have dropped to 3%.iii, iv

In addition, exiting fixed rate loans can be costly. Specifically, if a borrower decides to refinance a property prematurely it may trigger prepayment penalties. Prepayment penalties are fees borrowers are required to pay when they pay off (through refinance or sale) their loan balance prior to the maturity date. This high cost could limit syndicators’ flexibility to maximize their return by refinancing or their ability to accelerate their exit timing.v

Distinct from a fixed interest rate, a floating interest rate is one that is variable and fluctuates over time. Typically, floating rates are tied to an underlying benchmark rate or index. In the United States, we are now using alternative benchmarks like the Secured Overnight Financing Rate (SOFR) that, unlike LIBOR, bases rates on historical figures. The payment due on the loan changes in regular intervals, either monthly or quarterly, depending on the benchmark used.vi, vii

Floating rate loans are usually initially offered at a lower rate. If the fixed rate on a loan is 10%, the floating rate will usually range between 7.5% and 8%.viii These floating rate loans are mostly structured as interest-only loans, requiring a balloon payment at the end. A key benefit for floating rate debt is the inherent flexibility of limiting prepayment penalties and offering more flexible funding facilities. A funding facility works similarly to a line of credit or construction loan and can be used at the borrower’s discretion for capital expenditures such as construction and improvements, tenant leasing costs, tenant improvements, interest shortfalls, carry shortfalls, and tenant buyouts.ix, x

To help plan for expenses and to underwrite deals 5, 10, or even 15 years out, an interest rate cap is usually purchased to limit how high an interest rate can rise on floating rate debt. For example, a borrower can get a 10- year commercial property floating rate loan that charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down, but it can never go higher than 7%.xi, xii

Let’s look at some historical charts.xii Shaded in blue is the LIBOR rate, the gold line is the swap rate— the interest rate at which floating rate holders can switch to a fixed rate—and the gray line the effective market rate floating rate holders were currently paying at that time. As Chart 1 shows, between 2006 and 2013 the gold line (the swap rate) for two years moving forward was, in fact, higher than the gray line (the floating rate) debt holders were paying.xiii

The chart below depicts a 5-year time period between 1990 and 2017. Floating the rate for five years resulted in a maximum savings of 4.82% over that time. Fixing the rate yielded a 0.90% savings on swap.xiv

When looking at 10-year swaps between 1990 and 2012 (Chart 3), the maximum savings earned by floating topped 4.7% annually over a ten-year span, as shown.xv

The data illustrate that, at any point between 1990 and 2010, borrowers who leveraged floating rate financing, whether for a 2-year, 5-year, or 10-year period, saved more money than they would have with a fixed rate loan or by switching to such a loan during the course of their loan period.

Significant cost savings is the key reason Ashcroft Capital’s financing structure of choice is a floating rate loan. As a real estate investment firm that specializes in a multifamily value-add strategy, Ashcroft Capital’s typical holding period is 5 to 10 years. Securing extremely flexible debt allows us to remain nimble and maximize our exit strategy. Ashcroft Capital recognizes rates are climbing, which is why in all our debt structuring we purchase interest rate caps, thereby limiting our exposure from rate increases beyond what we are already expecting. This allows us to properly underwrite our deals and remain focused on reducing debt costs and maximizing NOI.

 

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Sources

i CCIM Institute. “The Rate Debate.” 2022, https://www.ccim.com/cire-magazine/articles/rate-debate/

ii The National Law Review. “Floating or Fixed Rates: Considerations in Choosing a Commercial Real

Estate Mortgage.” February 6, 2015, https://www.natlawreview.com/article/floating-or-fixed-rates-considerations-choosing-commercial-real-estate-mortgage

iii FRED. “30-Year Fixed Rate Mortgage Average in the United States.” June 9, 2022, https://fred.stlouisfed.org/series/MORTGAGE30US

iv Forbes Advisor. “Floating Vs Fixed Interest Rate: What Works For Your Home Finance?” April 19, 2021, https://www.forbes.com/advisor/in/personal-finance/floating-vs-fixed-interest-rate-what-works-for-your-home-finance/

v Bonneville Multifamily Capital. “Commercial Loan Prepayment Penalties Unwrapped.” 2022,   https://bmfcap.com/commercial-loan-prepayment-penalties-unwrapped/

vi Investopedia. “London Interbank Offered Rate (LIBOR).” March 12, 2022, https://www.investopedia.com/terms/l/libor.asp

vii Forbes Advisor: “What Is Libor And Why Is It Being Abandoned?” December 21, 2021,

https://www.forbes.com/advisor/investing/what-is-libor/#:~:text=While%20Libor%20will%20no%20longer,be%20published%20through%20June%202023.

viii Shriram City. “Fixed or Floating – Which Type of Interest Rate Is Better on Your Business Loan?” 2022, https://www.shriramcity.in/articles/fixed-or-floating-which-type-of-interest-rate-is-better-on-business-loan

ix Putnam Investments. “Pursue reduced interest-rate risk with floating-rate bank loans.” April 2022, https://www.putnam.com/literature/pdf/II790-2e76cb5d847bce9e8fce5233e13bb294.pdf

x Ready Capital. “Q1 Earnings Conference Call.” May 6, 2022, https://ir.readycapital.com/investor-relations/News/news-details/2021/Ready-Capital-National-Bridge-Team-Closes-Approximately-655-Million-in-11-States-in-First-Quarter-of-2021/default.aspx

xi Rocket Mortgage. “A Quick Intro To The Floating Interest Rate.” June 24, 2022, https://www.rocketmortgage.com/learn/floating-interest-rate#:~:text=A%20floating%20interest%20rate%20does,monthly%20mortgage%20payments%20to%20increase

xii Janover Ventures. “Commercial Real Estate Loans.” 2022, https://www.commercialrealestate.loans/commercial-real-estate-glossary/interest-rate-cap-floating-commercial-property-loan

xiii Ibid.

xiv Ibid.

xv Ibid.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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What Type Of Investor Are You?

January 11, 2023

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By: Travis Watts, Director of Investor Education

Even though no two investors are exactly alike, there are patterns to investors, and generally speaking, they fall into two types:

• The Passive investor
• The Active investor

Knowing which type resonates best with you can help align your investing to your personality and lifestyle preferences. Having this self-awareness is key when it comes to achieving your desired outcome. To help you figure out the best path and to understand the differences, let’s dive into these two investor profiles.

The Passive Investor
This is the most common type of investor, although, I’ve noticed over the past few years, there are not a lot of educational resources to help clarify the passive side of real estate investing.

Common Traits of a Passive Investor Often Include:

• Lacks the time to frequently monitor investments
• Enjoys reading financial news
• Likes to own a little bit of a lot (values diversification)
• Seeks to match, not beat, the market

This type of investor is often unemotional about the investing process while being more “active” on the portfolio management side rather than on the investment itself. Passive investors have an understanding of multiple types of investments, as well as the overall associated risks.

Portfolio Investments May Include:

• Real estate syndications
• Private placement offerings
• Notes or hard-money loans
• Tax liens
• REITs (Real Estate Investment Trusts)
• Stocks, ETFs and other publicly traded assets

Generally speaking, this type of investor is proactive when selecting investments, and then tends to sit back and enjoy the ride. The philosophy? Primarily long-term buy and hold, hands-off investments.

The Active Investor
In contrast to the passive investor, an active investor may also enjoy reading financial news; however, they often spend several hours each week or month actively monitoring and managing their investments. This person may seek to have involvement in a number of areas in the investing process. An active real estate investor could be similarly compared to an active day trader who follows the stock market, even if they don’t execute dozens of trades each month. This kind of investor usually prefers a more hands-on approach to their investing. An active investor is often more interested in the “business” of a particular investment or industry.

Common Traits of an Active Investor Often Include:

• Likes to create their own unique strategy or business plan
• Doesn’t necessarily value diversification as a top priority
• Seeks control over his or her investments
• May have a unique skill or upper hand compared to competitors
• Seeks to beat the market

Generally speaking, this type of investor is actively involved when selecting and underwriting investments. The philosophy? Short-term and long-term, “do-it-yourself” approach.

More About Your Personality
Consider how you respond to financial transactions, emotionally. This can help you invest in a way that’s aligned with your comfort zone. For example, if you’re investing and you sometimes feel nervous about making a mistake, this is a sign to be aware of, especially if it causes you to buy or sell on a kneejerk reaction. As another example, if you tend to develop an emotional attachment to a certain stock or piece of real estate, this may cause you to hold onto the investment longer than you should, in hopes that it will rebound; this can hurt your investment portfolio returns.

If these two examples describe your personality type, you may decide that a passive investing approach is more suitable. No matter what investing decisions you make, there can be real value in having insight into your investing personality, which ultimately allows you to feel more comfortable with the investing process. The sooner you identify what suits you best, the better off you will be in the long-term.

Emotions connected to money and finance can be traced back as far back as your childhood. For example, if your parents were anxious about how to invest; you may have picked up that habit yourself. It is helpful to be aware of these emotion-based patterns and break them as soon as possible, so they do not hinder your financial future.

Understanding Your Risk Tolerance

How Do You Handle Risk?

There Are Four Common Personalities When it Comes to Risk:

• Cautious
• Systematic
• Spontaneous
• Individualist

If you are cautious, you may be extra sensitive to losses in your portfolio, and you may feel more comfortable with safer or more conservative types of investments. Fear is usually playing the primary role with this personality type.

If you are systematic, you likely make investment decisions based on hard facts and data. Details and analysis matter and this personality type will often refer to research to make a decision. This personality type can also have a lower risk tolerance, but will rely on “the facts” to make a decision.

A spontaneous investor often has a higher risk tolerance as does the individualist. If you’re spontaneous, you may quickly switch from one investment or strategy to another. Perhaps on advice or knowledge you’ve recently received, or because of a new developing trend. This personality type finds satisfaction from frequent change and new investing ideas.

Individualists, typically seek unbiased research and due diligence to make decisions independently. They are often willing to take calculated risks because they are confident in their research. New trends and media hype often do not persuade an individualist.

Getting Started
No matter what personality type you have or what your risk tolerance is, self-awareness is a key ingredient to a successful investment strategy. Whether active or passive, investing is not a short-term endeavor, so it is beneficial to take a little time to reflect on your goals, your strengths, and the lifestyle you desire.

Step one is to simply get started on your own self-awareness

 

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Travis@ashcroftcapital.com

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Why Apartments Are “The Asset Of Choice” For Limited Partners

January 5, 2023

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By: Travis Watts, Director of Investor Education

Large multifamily properties have historically been owned by institutional investors such as mutual funds, REITs, insurance companies, and pension plans because of the stability and yield that apartments offer.

Being a Limited Partner investor allows an accredited investor and in some cases, a sophisticated investor an opportunity to buy a passive ownership stake and participate in these same large real estate acquisitions; a 400-unit apartment building, as an example. The Limited Partners (individual passive investors) can experience the same buying power, leverage, and potential tax benefits, just as institutional investors do.

The individual passive investor has the benefit of owning a percentage of an apartment community without day-to-day management obligations. Additional benefits may include monthly or quarterly cash flow distributions, potential income sheltering through depreciation and tax benefits, debt leverage, principal pay-down, and potential appreciation in value.

Predictable Income
An apartment building’s revenue is derived from rents paid by the residents for leased units and other income-generating items such as covered parking spaces, fenced-in yards, coin laundry facilities, and on-site storage facilities, to name a few. A strong property management team will focus on attracting qualified residents to the property and carefully have lease agreements executed, often with contracts lasting 12 months or longer. These practices in turn, generate long-term, consistent cash flow for the Limited Partner investors.

Forced Appreciation
By making improvements to an existing property (known as a value-add business plan), the property’s value can increase through this repositioning process. By increasing rents and occupancy, higher levels of revenue are generated. Since multifamily apartments are primarily valued based on the income they produce, a value-add business model can in a sense, “force” the property to appreciate in value rather than relying on market conditions or annual inflation. When the property is refinanced or sold, the proceeds can be returned to the Limited Partners or in some cases, can be rolled into another “like-kind” investment property using a 1031-exchange to defer the taxes.

Steady Cash Flow
One of the greatest advantages of real estate investing is the steady, and often tax-sheltered, monthly cash flow. Few investments can be bought with the same kind of steady cash flow return combined with the appreciation potential.

Tax Benefits
Distributions made to the Limited Partners are treated more favorably than most other types of investments because a significant portion of the distributions are often not considered income according to the tax code. This is due to the flow-through of expenses and depreciation. Additionally, the capital appreciation is deferred from taxation until the assets are sold and may be further deferred from taxation if a 1031-exchange is implemented.

Total Returns
An apartment’s combination of stable cash flow (primarily derived from rents), capital gains (resulting from increased property value upon sale), principal paydown (from residents paying down the loan balance over time) and tax savings (due to the current IRS rules and the additional benefits from the Tax Cuts and Jobs Act passed in 2017) provide returns that can be quite impressive given the current state of the stock market and the lack of yield offered by banks, money markets, CDs, and bonds.

A Hedge Against Inflation
Historically speaking, rents, property values, and the replacement cost of real estate improvements rise with inflation. This makes real estate a particularly effective hedge against inflation, and might be an asset class to help you balance your investment portfolio, especially in the low yield environment we are in today.

Ownership of Real Estate
Passive investors desiring steady income with a balance between risk and reward, may consider multifamily apartment investing as a Limited Partner to provide a solid foundation for building lasting wealth. Additionally, the ability to use a “hands-off” investing approach can be useful in building passive income streams that, in turn, free up time to spend on what matters most to the individual investor.

 

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Travis@ashcroftcapital.com

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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As Good As It Gets: Multifamily Apartments In 2023

January 3, 2023

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By: Travis Watts, Director of Investor Education

The news about today’s economy sounds bleak – “Are we going to enter a recession?” “Are we already in a recession?” “Did you hear the Fed raised interest rates again?” “When is inflation going to peak?”

While much can be said about the current state of the U.S. and global economy at large, savvy investors are not without opportunities to profit during volatile times.

Did you know $63 billion dollars was invested in multifamily apartments during the first quarter of 2022? That is 56 percent more than Q1 of 2021.[1] People need a place to live and we have been behind as a country since around the year 2000 in keeping up with demand for safe, affordable, workforce housing. While the dramatic increase in home prices and rising interest rates have put a pause on many people’s dreams of homeownership, it has also pushed demand for apartments and rental properties.

Let’s examine some recent history of when we experienced elevated levels of volatility and uncertainty in the United States.

 

MULTIFAMILY APARTMENTS – LESSONS FROM RECESSIONS

Recessions are seemingly unavoidable and present plenty of reasons for investors to question how their investments will fare in a downturn. Between 2007 and 2010, The Great Recession occurred, and vacancy rates spiked to the highest levels since the 1960s.[2] For multifamily property owners, that meant for every 100 units you owned, 10 were vacant or unrented. The percentage quickly spiraled down after 2010 as people who lost their homes and jobs needed affordable apartment housing to rent. So, even though vacancy rates shot up in the short-term, they recovered about a year later, and this proved to be a temporary setback.

Let’s take a look at the overall revenue change in multifamily apartments. During the Great Recession, revenue did indeed fall in 2008.[3] Then In 2009, while still amid the recession, revenue started growing again because of the demand placed on apartments. Take note, that Class B properties quickly returned to their pre-recession levels and were less impacted than Class A and Class C properties during the recession.

 

REAL ESTATE PROPERTY CLASSES AT-A-GLANCE

Class A: properties that generally were built in the last ten to fifteen years Located in prime locations, highest rents, new amenities, luxury communities, little to no deferred maintenance.

Class B: properties that generally range from ten to thirty years old. usually offering standard amenities, such as in-unit laundry, pools, and on-site fitness facilities, may be located outside of a major metropolitan market, due to their older age, often have deferred maintenance and may be slightly out of date.

Class C: properties with varying risks, including the age of the building, potentially located in a less desirable location, generally have lower income tenants. These apartments are often in a state of neglect, and may lack amenities such as a pool, fitness center, or community areas.

During The Great Recession, government-backed commercial real estate loan issued by Fannie Mae and Freddie Mac did see an increase in defaults but at mild levels of less than a one percent demonstrating the strength of this asset class.

Today, homeownership rates continue to decline due to housing affordability and access. [4] An increase in remote work in the post-Covid era, institutional buying of single-family homes, and mortgage rates nearly doubling over the past year has led to less inventory and greater competition, making homeownership even more expensive and less attainable for many. As home prices and interest rates soar, many consumers have found themselves priced out, and as a result, the demand for multifamily apartments has increased considerably.

Did you know there is currently half the volume of housing inventory compared to 2019 levels? Delays, worker shortages and inflation are increasing construction timelines and while 900,000 units are now under construction, another 3.7 million units will need to be built by 2035 to balance the supply shortage.[5]

Recession fears, combined with rising interest rates and high prices, have made consumers more cautious when it comes to purchasing a home versus renting. Given the economic outlook, multi-family real estate investments are assets uniquely positioned to weather a downturn.

 

RENT GROWTH AND RISING INTEREST RATES

In 2021, we saw historically high rent growth, with rents starting to climb in February due to inflation and demand.[6] Rental markets have experienced higher rent growth in the past 18 months than in the five years leading up to 2020.[7]

Multifamily apartments have historically held their ground during recessions and in the face of rising interest rates. High rent growth and an increase in demand help to strengthen returns, and if apartment rents continue to rise with inflation, this will also help offset rising interest rates.

Additionally, multifamily apartments have also been a good hedge against inflation. The figure below shows multifamily apartment returns compared to the CPI inflation over the last decade. In the last 10 years, the total return in multifamily has outpaced inflation every single year, averaging an excess return of 5.83% after adjusting for inflation.

Though interest rates have risen considerably over the past year, record-setting rent growth has effectively outpaced the additional costs associated with the rate increases to help make the case for multifamily apartments during this downturn.

 

KEY TAKEAWAYS

  • If apartment rents continue to rise with inflation, this can help offset rising interest rates and help multifamily apartments to remain an inflation-resistant investment vehicle.
  • If a lack of multifamily apartment inventory persists prices should remain
  • If the occupancy, collections, and net operating income continue to hold or increase, equity in multifamily apartments will be better protected
  • If homeownership continues to decline and housing remains unaffordable consumers will need to rent.

 

ASHCROFT CAPITAL AND MULTIFAMILY INVESTMENTS

National multifamily rent growth has risen more than 10 percent on a year-over-year basis, with Florida (specifically, Orlando, Miami, and Tampa), Dallas, and Nashville leading in rent growth.[8] Currently, Ashcroft Capital’s communities are located in the growth markets of the Sun Belt region, including Atlanta, Dallas-Fort Worth, and Orlando, which experienced 14 percent, 17 percent, and 24 percent year-over-year growth, respectively, all exceeding the national average.

At Ashcroft Capital, we have a proven track record of creating value through renovating, rebranding, and repositioning our investment properties. We buy existing cash flow-positive, high-quality, well-located properties in markets with strong multifamily fundamentals, employment growth, and population growth.

Ashcroft Capital is vertically integrated = – not only do we purchase multifamily properties; we also manage our properties after acquisition via Birchstone Residential and Birchstone Construction – both in-house and wholly owned subsidiaries of Ashcroft Capital. Birchstone Residential manages the properties providing an unparalleled renter experience with superior service, maintenance, and digital marketing for the properties. Birchstone Construction performs large-scale, value-add renovations with efficiency and with complete control of the construction process from start to finish. These integrations streamline our management structure, allowing us to make decisions quickly and act decisively. By having our own in-house construction group, we are able to work directly with manufacturers, which has reduced our materials costs by roughly 35 percent. And by not having to work with third-party contractors, we are better able to manage our renovation timelines.

Ashcroft Capital owns over 12,500 rental units, with over $2.5 billion in assets under management. We have taken 26 deals full cycle, all the way from purchase to sale. Our net return to investors after all fees has been 21.7 percent annualized (This IRR return includes both cash flow as well as an equity return on investment for properties sold). This historic return represents a 1.8x multiple.

The Ashcroft Value-Add Fund III (“AVAF3”) is open for enrollment. We introduced for AVAF3 our Ashcroft Investment Incentive, which provides the opportunity for you to see a larger return the more you invest. With our new waterfall structure, as a Class B investor, you have the potential to receive a higher return on your investments.

Many questions regarding AVAF3 are answered on our AVAF3 deck. Read more about the opportunities that the Sunbelt market offers and our continued efforts focused on capital preservation and reducing risk to our investors.  To start your investment, enroll here.

If you would like to learn more about investing in multifamily assets, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Travis@ashcroftcapital.com

Sources

[1] Rising Interest Rates Aren’t Stopping Apartment Investors from Cutting Deals. wealthmanagement.com™. (n.d.). Retrieved October 10, 2022, from www.wealthmanagement.com/multifamily/rising-interest-rates-aren-t-stopping-apartment-investors-cutting-deals

[2] Homeowner and Rental Vacancy Rates Declined During COVID-19 Pandemic. census.gov™. (n.d.). Retrieved October 10, 2022, from www.census.gov/library/stories/2022/05/housing-vacancy-rates-near-historic-lows.html

[3] Class B Multifamily Performed Best During Past Downturn. cbre.com™. (n.d.). Retrieved October 10, 2022, from https://www.cbre.com/insights/articles/class-b-multifamily-performed-best-during-past-downturn

[4] By 2040, the US Will Experience Modest Homeownership Declines. But for Black Households, the Impact Will Be Dramatic. urban.org™. (n.d.). Retrieved October 11, 2022, from www.urban.org/urban-wire/2040-us-will-experience-modest-homeownership-declines-black-households-impact-will-be-dramatic

[5] THE STATE OF HOUSING SUPPLY: ‘NOT ENOUGH HOMES TO GO AROUND’. builderonline.com™. (n.d.). Retrieved October 26, 2022, from mf.freddiemac.com/docs/2022-multifamily-midyear-outlook.pdf

[6] National Multifamily Report. yardimatrix.com™. (n.d.). Retrieved October 11, 2022, from https://www.yardimatrix.com/publications/download/file/2514-MatrixMultifamilyNationalReport-June2022

[7] 2022 Multifamily Midyear Outlook. freddiemac.com™. (n.d.). Retrieved October 11, 2022, from mf.freddiemac.com/docs/2022-multifamily-midyear-outlook.pdf

[8] National Multifamily Report. yardimatrix.com™. (n.d.). Retrieved October 11, 2022, from https://www.yardimatrix.com/publications/download/file/2514-MatrixMultifamilyNationalReport-June2022

 

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Inflation and Opportunities During Recessions

December 29, 2022

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By: Travis Watts, Director of Investor Education

In the fourth episode of Multifamily Market Report I cover inflation, the impact of inflation on the real estate market, what we saw last year and this year, and what we might expect in 2023.   

Multifamily apartments are a resilient asset class, and we can see this by looking at past recessions, such as the dot-com crash, the Great Recession, and the Pandemic Recession. In general, multifamily performs well in up-trending markets, flat markets, and even in declining markets. Lets uncover why that is.  

According to research by Coldwell Banker Richard Ellis (“CBRE”), if we look at the national stats, in preexisting class B apartments during the Great Recession (2008–2010) rents fell by only $125 per month. The recovery was quick as Americans needed affordable housing during the recession, and many lost their homes. Once rents bottomed out, the rent decline was short lived. It took less than two years to get back to prerecession rent pricing levels.  

So whats happening right now? Looking at the governments consumer price index (CPI) reading (you can learn more at www.bls.gov ) reveals that we’ve been running at 40-year high inflation. The CPI measures the increase in the cost of goods, services, housing, and so on. All items are indexed into a basket of goods that allows the government to measure the inflation rate. The government runs the numbers every month, and that’s how it comes up with the annualized inflation rate. We have been running hot on inflation (7%9% annualized) for the majority of 2022.  

While inflation is not necessarily good news for consumers with the cost of groceries, gas, and everyday essentials increasing, there is a silver lining for multifamily apartments.   

You may have seen headlines over the past two years stating that home building costs have risen at unprecedented rates. In fact, the cost of materials required to build an average-sized, single-family home increased 42 percent from 2018 to 2021, adding material costs of roughly $35,000 to the total cost of building. With inflation pushing up the price of materials, preexisting, multifamily housing tends to follow the inflationary trend as the cost of and demand for affordable housing increases as well. As single-family homes become more expensive, more people are priced out of the market, resulting in a higher demand for apartments. As a result, there is a severe nationwide shortage of affordable, safe, workforce housing.   

Source: https://www.npr.org/2022/07/14/1109345201/theres-a-massive-housing-shortage-across-the-u-s-heres-how-bad-it-is-where-you-l 

You can think of it like this: Lets say a real estate investor bought a single-family home in 2020 and rented it out. If the investor paid all cash and charged $2,500 per month in rent and the expenses for owning that property were $500 per month, the investor would net $2,000 per month. If we multiply that by 12 months, we get $24,000 per year in cash flow. Last, if we take that $24,000 and divide by the purchase price of the home (well call it $300,000), that results in an 8 percent annualized return.  

Because the housing market went up between 2020 and 2021, the investor decided to sell that property for $400,000. As a result, the next buyer must figure out how to make a profit based on the higher purchase price. If the next investor decided to buy the property at $400,000 and did not increase the rent, the new owner would be looking at a 6 percent annualized return instead of the previous 8 percent. So in order to generate an 8 percent return (assuming that is the goal), the new buyer would need to raise the rent to $3,150 a month.  The following is the breakdown of how the 8 percent annualized returns would be generated: 

  • Monthly holding cost is $500  
  • Net profit is $2,650 per month  
  • Multiplied by 12 months equals $31,800 annually  
  • Divide by the purchase price of the home ($400,000)   
  • The result is an 8 percent annualized return  

The simple takeaway is that with high inflation, rents tend to increase. What we have not addressed yet is a value-add business plan. Value-add refers to adding value to both the residents and property through renovations and upgrades. Some examples of value-add would include the following:  

  • Renovating apartment units and the clubhouse   
  • Improving the landscaping  
  • Renovating or adding amenities (e.g., pools, gyms, dog parks, and barbecue areas)  
  • Adding resident features (e.g., covered car parking, fencing for ground-level yards, package locker systems, in-house security systems, USB charger outlets, smart thermostats)  

A value-add business plan can create an updated look and feel and provide a safer and nicer place to live. Because the residents have a higher quality of life, there can be justification for raising the rents. That is another way investors can benefit despite the general market trend.   

Of course, its not all good news. Inflation’s running at 40-year highs, and the Fed Funds Rate today has not increased to where it was in the early 2000s (around 6.5%) and is not even close to the all-time highs of the 1980s. To help tackle inflation, the Federal Reserve has been raising rates all year, and it has suggested there are more rate hikes on the horizon. And with the higher interest rates, more borrowing costs are passed on to the next buyer.   

When mortgage rates increase from 3 percent to 6 percent, as we have seen over the past year, it makes buying real estate more expensive. If we consider a 30-year fixed rate mortgage at 3 percent interest and a loan balance of $300,000, the payment falls somewhere around $1,265 per month. But if we raise the interest rate to 6 percent, the payment is closer to $1,799 per month.  

This is what were experiencing this year, and it leaves investors with two options. You could try to negotiate a discount and ask the seller to reduce the price of the property to help offset the higher borrowing costs, or you could buy the property anyway and look for ways to raise the rent.  

The first option has a negative impact on real estate pricing. If price cuts start happening on a large scale, this brings comparable sales down, which drags the price of real estate down. But the second option—raising rents—is an opportunity for investors. Rents rising with inflation, combined with a value-add business plan and discounted properties due to interest rates, may be the opportunity of 2023.   

  

A few things to consider in 2023 if you’re going to be investing:  

#1: Understand that real estate is local. For example, according to Yardi Matrix, San Francisco multifamily properties experienced only a 4 percent annual rent growth in 2021 whereas Tampa experienced more than 20 percent growth.  

#2: The type of business plan you consider is important. For example, with an existing multifamily that already has renters in place, you have the ability to raise rents whereas a new developer does not have renters yet and may have higher interest rates to consider on construction loans. The developer also has higher labor costs to consider, nationwide worker shortages, and worldwide supply chain issues. In addition, if interest rates continue to rise, the propertys potential selling price may be lower once it’s completed.  

#3: The type of real estate you choose matters. Multi-family, single-family, self-storage, hotels, retail, medical offices, industrial, and mobile home parks all fall under the category of real estate, but each is unique. For example, office rents were up 1.2% year-over-year as of August 2021-2022. At the same time, multi-family rents were up over 10% nationally according to Yardi Matrix.   

 

Final Thoughts:  

Inflation can be positive or negative depending on your investment strategy. 2023 is a year to use caution, conduct proper due diligence, and invest wisely with experienced operators who are underwriting conservatively.  

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” – Warren Buffett 

Source: https://www.azquotes.com/quote/40665 

 

To Your Success 

Travis Watts 

 

Watch Multifamily Market Report episode 4 below.  

To watch more episodes of the Multifamily Market Report, please visit our YouTube channel at www.youtube.com/c/AshcroftCapital. As always, if you have any questions, you can reach me at Travis@ashcroftcapital.com. 

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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How We Maintain Our Value-Add Strategy Despite Inflation And Supply Chain Shortages

December 22, 2022

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By: Travis Watts, Director of Investor Education

In the beginning of the pandemic, shortages and supply chain issues affected many industries including multifamily investing. And though we were sourcing materials in bulk, Ashcroft Capital wasn’t spared these issues. But this was over a year ago. In 2022, these supply chain shortages, as well as inflation issues continue to exist, but we geared up to figure out a solution.

For our value-add strategy to be successful, we knew our renovations could not be delayed or changed due to supply chain shortages. We were going to need to figure out how to successfully source large quantities of materials such as lumber, flooring, appliances, countertops, et cetera, while keeping costs in line with our original budgets. We would also need to factor in and solve for inflation. These were major challenges that we overcame by maintaining solid leadership, having an incredibly strong team and being proactive.

Our Vice President of Construction, Keith Hughes, and his team have been highly motivated to drive down costs on our portfolio and guarantee our projects run smoothly so that we don’t experience any issues with shortages. Buying in bulk has helped us to take advantage of economies of scale, which allows us to reduce costs. And because we purchase such large quantities at once, this also serves to keep costs down and hedge against inflation.

For example, at the beginning of the fourth quarter, we placed a large order of enough supplies to cover 2,500 units of anticipated renovations. We spent approximately $3 million on these supplies, and we paid for them upfront. When we purchase our supplies, we buy direct from the manufacturers via a procurement specialist that we have on our staff. The supplies are then stored in a warehouse that we control in Dallas, Texas. While in the Dallas warehouse, we organize the supplies into “kits.”

These kits are fitted with our value-add design in mind. For example, we’ll create a specific kit with flooring, cabinetry, lights, and faucets. And it’s not one-kit-fits-any-unit. We’ll piece it out for one-bedroom, two-bedroom, or three-bedroom units to the exact measurement of every floorplan. We have unique kits for both our higher class of community, which is our “Halston” brand, and our more economic version called, “Elliot.” Our crew will put all the kits together in our Dallas warehouse and then they’ll be shipped directly to our communities around the Sunbelt, as needed.

Keep in mind, we’ve done this several times prior to this and are continuing to maintain this process to remain proactive. Again, this is a hedge against inflation because 2,500 units worth of supplies are expected to last us over a year. So, we won’t have to ride this out. It will, at least, be a fixed cost for that period of time. And because we’re buying in such large bulk orders all at once, it is much cheaper than if we were going to a local supply store and buying these items one property at a time.

But inflation isn’t just impacting raw supplies. We’re seeing it every time we buy groceries or fill up our gas tanks. What’s important to note is that not only are the cost of goods increasing, but incomes are also increasing. Nationally, incomes have more than doubled. Incomes have grown 6.9% over the past 12 months compared to the 10-year average of 3.2%.1 This average growth is what helps support the growing rents that we’re seeing throughout the markets that we are in and the fact that renters can more likely afford these rents and will likely continue to be able to do so.

In terms of cost and expenses with regard to inflation, we are doing our best to keep the cost of our construction projects steady. Our underwriting conservatively assumes these costs, which gives us room for these costs to grow over time, but still be within our budget. The same holds true for our expenses. We conservatively underwrite expenses. In most cases, given Birchstone Residential’s economy of scales in the markets and their proficient approach to operations, expenses often come in lower than our underwriting. We’re not naive to the fact that inflation is real, and we are definitely taking this into consideration by being as proactive as possible to keep the costs and impacts as low as possible so that we can continue to deliver competitive returns for our investors.

Download the full article here.

 

AVAF3 is open for enrollment. The Ashcroft Investment Incentive provides the opportunity for you to see a larger return the more you invest. With our new waterfall structure, as a Class B investor, you have the potential to receive a higher return on your investments.

If you are interested in learning more about AVAF3, a lot of your questions are answered on our AVAF3 deck. Read more about the opportunities that the Sunbelt market offers, and our continued efforts focused on capital preservation and reducing risk to our investors. 

As always, if you would like to learn more about investing with us please schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. 

Travis@ashcroftcapital.com

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Your Questions Answered: AVAF3, Midtown 501 + More

December 21, 2022

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By: Travis Watts, Director of Investor Education

Our conference call introducing the Ashcroft Value-Add Fund 3 (AVAF3) and its first property, Midtown 501, was full of important information for our investors. Here is a little of what was discussed on the call: 

  • The Ashcroft Investment Incentive: When you invest in AVAF3 and our new waterfall structure, as a Class B investor, you have the potential to receive a higher return on your investments.  
  • You have until December 31, 2022, to participate in 100% bonus depreciation before it decreases next year.  
  • The 2022 year-to-date rent growth at Midtown 501 is 12.4%, compared to a US national average of 4.7%. 

The call hit on why we are launching AVAF3 and the details of the first asset. Although we received several great questions from our audience, we wanted to highlight two below: how Midtown 501 compares to our other assets and why the property is being sold. 

 

Question: How does this deal compare to other deals you have done in the past? 

Answer: Frank Roessler, CEO and cofounder, said, 

 

It probably compares very, very well to about two dozen or so communities in the 54 we’ve acquired, if not more. But if I had to pick one, I’d actually pick Halston Riverside. And that is for a few reasons. Halston Riverside was the first acquisition in the Ashcroft Value-Add Fund I, and Midtown 501 is the first in the Ashcroft Value-Add Fund III. Halston Riverside was our first property in a new market, and this is our first property in a new market . . . 

. . . We implemented a very similar business plan, and that plan was received by the market extremely well. We have grown the NOI significantly at Halston Riverside since the takeover. As a matter of fact, since we acquired the property, we bought it for $81 million. We just recently got a BOD for $98.5 million. 

That increase represents a 20% increase in value in just 18 months, and we can never make any promises about future results or returns. But we do promise to run Midtown 501 with the same care and attention that we are currently putting into Halston Riverside. 

 

Question: Why is the current owner selling? 

Answer: Scott Lebenhart, chief investment officer, said,  

 

The current owner of Midtown 501 is DRA Advisors, and their partner on it, Eller Management, is a locally based Raleigh company. As mentioned earlier, I worked for DRA for over 11 years, and although one of my colleagues was the lead on the acquisition of Midtown 501, I was there when DRA bought it. We still maintain a very good relationship with them as we’ve already purchased two properties from them since I’ve been to Ashcroft.  

DRA is now near liquidation mode of one of their funds that own Midtown 501. This is a fund with about $4 billion worth of assets in it, and they’re market sellers in order to facilitate selling the rest of the properties in the fund.  

Given our previous relationship, we were able to give DRA comfort that we will be able to execute this transaction with the volatility that exists in the capital market. Additionally, our relationship and track record of doing what we say we will enabled us to be awarded this deal at a price below the highest bidder. 

If you would like to read the full transcript, you can download it here. 

 

Investing in AVAF3 can help you earn passive income and help put you on the path to achieving your financial freedom.
Ashcroft Capital’s Director of Investor Education, Travis Watts recently put out a video breaking down what AVAF3 is and the key differences between this fund and previous funds. This investment opportunity is open only to accredited investors. It is a closed-end fund, which means once we raise the capital needed or we acquire six to ten new properties the fund will be closed. These properties will be located in the high growth and high demand Sun Belt markets.
Watch the full video here to learn more about our first property in the fund and why you should invest now.

Space to join AVAF3 in 2022 is limited, and so is the time to participate before bonus depreciation fades away at the end of 2022. If you are interested in learning more about AVAF3, a lot of your questions are answered on our AVAF3 deck.

Start now to achieve your passive income goals with Ashcroft Capital, enroll here.

If you have further questions about investing with us please schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. 

Travis@ashcroftcapital.com

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Why Big Money Is In The Niches

December 8, 2022

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By: Travis Watts, Director of Investor Education

When I graduated from college and started looking for a job, I started by looking at the companies affiliated with my university, as they hire most of the recent grads. I found the process to be fairly easy. However, because there were endless amounts of applicants, most of the positions were low paying.    

Several years later, I worked in the oil and gas industry and realized I had enough passive income from my real estate investments to quit my job and pivot careers. I was interested in learning more about the financial system and wanted to expand my investment knowledge. I went looking for a financial services job that didn’t specifically require a finance degree. The result was nearly the same as my post-college job search. There were a lot of applicants for entry-level to mid-management jobs and most were low paying. 

 

“You get paid in proportion to the difficulty of the problems you solve.”  

– Elon Musk 

 

If you send people to Mars or build an electric car company that serves the masses, you may have a good chance of making serious money. These are small niches to operate in, and there are difficult problems to solve for. However, if you look for an entry-level to mid-level job at these types of companies, you’ll likely find a modest to mediocre salary. Let’s examine how this relates to real estate investing.   

 

Question: How many people do you think have an interest in investing in real estate?   

 

30% Let’s estimate that 30 percent of the US population has some level of interest (currently investing or considering investing) in real estate. Now, let’s narrow down to people interested in multifamily real estate, specifically. Whether we’re talking about a duplex or a 600-unit apartment building, what percentage do you think this would be?   

10%Let’s assume the numbers drop down to 10 percent. Now, how many people do you think are interested in pre-existing value-add multifamily properties, specifically?    

5%Let’s say five percent because some investors may be interested in new development multifamily or other business models. Now let’s examine the interest in only larger units such as a 200+ unit value-add multifamily apartment buildings. How many people do you think would be interested in investing in this this product inside a real estate private placement fund as a limited partner?   

3%This percentage continues to narrow as thresholds such as being an accredited investor, or needing $25,000+ to invest limits more of the population.  

1%At this point, it is possible that only one percent of the general population may consider investing at this point.    

This is one reason why riches are made in the niches. The opportunity to make big money is often found in asset or business that is scarce, in demand, and provides a resource.   

Let’s look revert back to Tesla for a minute. Is an electric vehicle scarce? With 250 million cars, SUVs and light-duty trucks on the road in the United States, only one percent are electric. Are electric vehicles in demand? Many electric cars have wait lists that ranges from three months to 24 months at the time of this writing. Prior to the pandemic and war in Ukraine, owners waited 10 weeks. And finally, is an electric vehicle a resource? Absolutely, it is a tool for helping people get from place to place.   

Now let’s consider multifamily apartments. Are they scarce? Almost half of Americans, 49 percent say they lack affordable housing in their community. This has grown 10 percent since early 2018. Affordable rents to a wider array of households is needed but several factors including labor, materials, and regulatory restrictions prevent building new multifamily housing. Are multifamily apartments in demand? The national occupancy rate for the last five months sits at 96 percent. Apartment buildings are nearly full and are highly in demand. Are multifamily apartments a resource? Absolutely, given the fact that renters account for 36 percent of U.S. households, apartments are a resource for millions of people.

 

Ashcroft’s Real Estate Fund  

At Ashcroft Capital, we have a proven track record of creating value through renovating, rebranding, and repositioning our multifamily apartment properties in high-demand markets. We buy existing cash flow-positive, high-quality, well-located properties in markets with strong multifamily fundamentals, employment growth, and population growth.  

All the properties we acquire have a value-add component which is essentially the ability to reposition the asset through capital improvements and upgrades, renovating the interior units improving operations, decreasing expenses and creating other revenue-generating projects. As we move through our business plans, we are also improving communities and providing a better quality of life for thousands of renters every year.    

Real estate funds like the Ashcroft Value-Add Fund 3 (“AVAF3”) offer broader diversification compared to investing in a single deal. Investments are allocated across multiple properties and multiple markets, offering a more balanced portfolio.   

The AVAF3 is an open private placement fund for accredited investors interested in diversifying their portfolio(s) into multifamily real estate. The AVAF3 is acquiring multifamily properties throughout the Sunbelt regions (TX, FL, NC and GA) with an anticipated hold period of 5-7 years.   

AVAF3 offers both Class A and Class B share types. An investment in Class A shares earns a 9% annualized coupon, generating strong projected cash flows while reducing risk. Upon disposition of a property in the fund portfolio, Class A shares do not participate in the potential equity upside, whereas Class B shares earn a 7% coupon, and have a greater potential return due to participating in the potential equity upside upon the disposition of the properties in the fund.   

For additional information, please visit AVAF3.com or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.   

Download the full article here.

Travis@ashcroftcapital.com

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Five Sun Belt Markets Poised for Long-Term Success

August 25, 2022

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If you own or operate apartment communities, it’s hard to find a better part of the country to be in than the Sun Belt. In his latest blog for Multifamily Insiders, Ashcroft CEO Frank Roessler details why five Sun Belt markets – Dallas-Fort Worth, Atlanta, Tampa, Orlando and Jacksonville – are especially attractive.

To read the full article, visit Multifamily Insiders.

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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Creating Value in Today’s Value-Add Properties

August 30, 2021

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As Ashcroft Capital CEO Frank Roessler notes in his new Multifamily Insiders blog, “just because apartment companies frequently undertake value-add projects, it doesn’t mean success in these endeavors is easy. On the contrary, a value-add community that attracts residents and produces the targeted returns is the end product of an almost never-ending amount of diligent research and careful strategic planning.”

Roessler goes on to outline his essential steps for success in value-add projects. The steps include digging into submarket data, visiting properties you’re considering buying and understanding there is no “one-size-fits-all” renovation that will create value in every apartment community.

To read his full blog, visit Multifamily Insiders.

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

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The Benefits of In-House Construction Teams

August 20, 2021

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A new Multifamily Executive article examining the efficiencies created by in-house construction divisions features analysis and perspective from Ashcroft Capital CEO Frank Roessler.

Roessler told the magazine that apartment firms sometimes create their own construction teams for the wrong reasons, such as attracting investors or creating new revenue streams.

“Why should you do it then?” Roessler says in the article. “One of the reasons is because you’ll be overseeing your own assets, and you are motivated because you own these assets. Having it in-house, you’ll do a better job innately because you care more. And if you partner with the right people, your construction efforts will become much more streamlined and efficient.”

To read the full article, visit Multifamily Executive.

Disclaimer:

The testimonials, statements, and opinions presented herein (collectively referred to as “Testimonials”) do not necessarily reflect the opinions of Ashcroft Capital LLC and/or its affiliates. Any ideas and strategies construed from Testimonials should never be relied on and/or used without first assessing your own personal and financial situation, or without consulting a financial professional.

Testimonials are applicable to the individual(s) depicted. Results will vary and may not be representative of the experience of others. Unique experiences and past performance do not guarantee future results. All Testimonials are voluntarily provided. No person or entity was paid for his/her/its/their Testimonials. No free products, services, or any benefits were provided in exchange for said Testimonials.

Ashcroft Capital LLC and/or its affiliates makes no representations as to the accuracy, completeness, suitability, or validity, of any information in the Testimonials. Ashcroft is not liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use of Testimonials.

Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.