By: Evan Polaski, Investor Relations Managing Director
Florida is experiencing rapid population growth, while maintaining an unemployment rate of 2.2%, below the national average of 3.5%. The state has exceeded the national job growth rate for the last 21 months. Florida’s “Florida 2030” plan aims to strengthen communities and businesses in all 66 counties. The state is adding 1,000 residents a day and is forecasted to create more than 250,000 jobs in 2023–continuing to be one of the top states leading job creation.
Ashcroft Capital has identified two exceptional investment opportunities, Gateway Lakes and Cocoplum, as the second and third assets in the Ashcroft Value-Add Fund III (AVAF3) portfolio. These properties offer a unique combination of regional and economic benefits, making them attractive for investors seeking to capitalize on high-growth markets, quality construction, and a robust business plan. In this article, we will delve into the details of these properties and explore why Ashcroft Capital is investing in Gateway Lakes and Cocoplum multifamily properties.
Location, Location, Location
Gateway Lakes and Cocoplum are located in high-growth markets with thriving economies and rapidly growing populations. This population growth is fueled by diverse industries, including technology, healthcare, and finance, creating new job opportunities and attracting skilled workers. Both properties are strategically located near major employment centers, providing residents easy access to job opportunities and contributing to the strong demand for rental properties in these areas.
Gateway Lakes is near the University Town Center, one of the largest retail centers in Sarasota, and the Sarasota Memorial Hospital. Sarasota is also home to white sand beaches with over 120 parks and trails spread over 3,000 acres. As one of the fastest-growing metros in the country, Sarasota ranked 4th in the nation for net immigration in 2022, and the population has increased by 4.2% since 2020, outpacing the national average of 0.4% during that same time period. This explosive growth is expected to continue as the 5-year forecast projects a population increase of 13.1%, including a 9.3% increase in residents within the 18 to 35 age range, compared to 2.6% nationally.
Cocoplum’s location within the Ft. Lauderdale metro continues to benefit from significant net immigration, with residents relocating from all areas of the nation. The city has seen its population grow more than 14% since 2010. With its relative affordability, quality of life and tax-friendly environment, major companies such as Citadel, Blackstone, Microsoft, Starwood Capital, and Uber are among hundreds of companies that have relocated to the South Florida region. With the influx of corporations and businesses relocating to Broward County, the economic base expanded 2% year-over-year in 2022, which has kept unemployment below 2.5%, outpacing the nation.
Additionally, both properties are near top-rated schools, further enhancing their appeal to families and young professionals. Both properties have demonstrated consistent rent and occupancy growth over the past few years, reflecting the strong demand for quality housing in their respective markets. Furthermore, this trend is expected to continue as population and job growth in these areas drive further demand for rental properties.
Opportunities for Property Renovation and Improvement
Gateway Lakes and Cocoplum boast high-quality concrete block construction that withstands high winds, is better insulated, and minimizes noise. Both properties offer residents a range of amenities and have been well-maintained, with the previous owner investing in upgrades and improvements to enhance their appeal to residents. Built in 1996, Gateway Lakes offers 358 units with an average size of 968 square feet and is 96.1% occupied. Cocoplum, built in 1986/87, consists of 360 units with an average size of 1,134 square feet and is 94.2% occupied.
Gateway Lakes and Cocoplum offer significant opportunities for vertical integration through targeted renovation and improvement plans. These properties can further increase their market competitiveness and rental income potential by investing in strategic property enhancements, such as upgrading apartment interiors, modernizing amenities, and improving curb appeal. This vertical integration strategy allows investors to maximize the value of their investment and generate strong returns over time.
Since 2017, the current owner of Gateway Lakes spent more than $4 million on capital expenditures, including new roofs, exterior paint, amenity enhancements, and light unit upgrades. To better compete with the neighboring properties in the area, Ashcroft Capital’s business plan includes fully upgrading all common areas and amenities to a best-in-class finish. Furthermore, the clubhouse, fitness center, pool areas, and other features are expected to be significantly improved to elevate the property’s overall quality. Current ownership has renovated five units to a full luxury renovation scope, achieving premiums of around $250/per month over their “classic condition” units. This provides Ashcroft Capital the opportunity to bring the remaining 353 units to a luxury-level finish by upgrading the units to include wood-style flooring, quartz countertops with an under-mount sink, stainless steel appliances, subway tile backsplash, new cabinet fronts, updated fixtures and hardware, and a modern lighting package. [the above sentence could be shown along with the before and after photos] Additionally, we plan on installing private backyards to select units. Renovated rents at the property are projected to remain below the immediate comp set, leaving further upside potential.
Since 2017, the current owner of Cocoplum spent more than $5 million on capital projects such as roof repairs, exterior paint, and amenity enhancements. However, the now-dated common areas will benefit from significant upgrades to provide residents with a best-in-class amenity package. To better compete with the neighboring properties in the area, Ashcroft Capital will fully upgrade all common areas and amenities (i.e., fitness center, clubhouse, etc.) to a best-in-class finish that will further elevate the property’s overall quality. The current owners have also begun an interior renovation program with 227 units (62%) that have been upgraded and are achieving premiums of $200-$250 per unit. Additional upside remains through adding new lighting, subway-tile backsplash, and other upgrades, which will command an additional premium. The remaining 133 units are a mix of partially renovated and classic condition units, which Ashcroft Capital will renovate to include wood-style flooring, quartz countertops with an under-mount sink, stainless steel appliances, subway tile backsplash, new cabinet fronts, updated fixtures and hardware, and a modern lighting package. [the above sentence could be shown along with the before and after photos] Given Ashcroft’s conservative approach, our projected renovated rents at the property are still below other nearby properties, leaving further room for additional upside.
The renovation and improvement plans for Gateway Lakes and Cocoplum are designed to create significant value for investors by enhancing the properties’ market competitiveness and rental income potential. By providing residents with a comfortable and luxurious living environment and desirable amenities, these properties are well-positioned to attract and retain high-quality tenants, ensuring stable rental income for investors.
Ashcroft Capital’s Investment Business Plan
Ashcroft Capital’s primary focus is on capital preservation, ensuring that our investors’ capital is protected and secure. Investing in high-quality properties, like Gateway Lakes and Cocoplum, minimizes the risk of capital loss and provides our investors with a stable, income-generating asset. Our conservative underwriting approach and rigorous due diligence ensure we aim to invest in properties with strong fundamentals and long-term growth potential.
Timing is crucial in real estate investment, and Ashcroft Capital carefully selects deals that offer the right combination of risk and reward. With Gateway Lakes and Cocoplum, we have identified properties well-positioned to benefit from their respective markets’ strong regional and economic trends. Additionally, pricing has come down over the past 18 months, and these properties are being purchased for $204 million, representing a 5.5% cap rate on the portfolio. The cap rate is NOI divided by the purchase price. Therefore, if this portfolio were trading a year and a half ago based on the same NOI of today, it would’ve traded at a 4% cap rate about 18 months ago. If you apply that 4% cap rate to the same NOI that we’re buying it at, that would equate to roughly a $264 million purchase price. Again, we’re buying for $204 million, representing roughly a 29% discount to where prices traded 18 months ago. Our cap rate will be spread above the all-in interest rate of the loan, and this debt structuring will allow for stronger cash flow throughout the term of the hold. By investing in these properties at the right time, our investors can capitalize on the growing demand for quality housing and generate attractive returns.
Ashcroft Capital utilizes fixed-interest loans to finance our investments, providing our investors with predictable and stable cash flows. By locking in favorable interest rates, we can minimize the impact of interest rate fluctuations on our investments and ensure consistent returns for our investors. This conservative financing approach further enhances the stability and security of our assets, making Gateway Lakes and Cocoplum an attractive opportunity for investors seeking a reliable income stream.
Gateway Lakes and Cocoplum present a compelling investment opportunity for investors seeking to capitalize on the regional and economic benefits of high-growth markets, quality construction, and a robust business plan. By investing in these properties, investors can benefit from strong rent and occupancy growth, capitalize on opportunities for vertical integration, and enjoy the stability and security of a well-structured investment.
Ashcroft Capital’s Real Estate Fund
Ashcroft Capital has a proven track record of success in the real estate investment industry, having acquired over $2.7 billion in assets and managing a portfolio of more than 13,000 units. This experience and expertise provide investors with confidence in Ashcroft’s ability to identify and capitalize on exceptional investment opportunities, like Gateway Lakes and Cocoplum. Our disciplined approach to underwriting and asset management ensures that each investment is carefully evaluated and managed to maximize returns for investors. As our investors know, we have a track record of selling 26 deals for an average return of 25.6% to our investors.
The regional and economic benefits of Gateway Lakes and Cocoplum, combined with Ashcroft Capital’s expertise and proven track record, make these properties a great investment for investors. By investing in these properties, investors can capitalize on the strong market fundamentals, attractive location benefits, and significant value-add potential, while enjoying the stability and security of a well-structured investment managed by an experienced real estate investment firm.
Real estate funds like the Ashcroft Value-Add Fund III (AVAF3) differ from 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.
The AVAF3 is an open private placement fund for accredited investors interested in diversifying their investment portfolios into multifamily real estate. The minimum investment is $25,000 and 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 hold of 5-7 years.
The AVAF3 offers both Class A and Class B share types. An investment in Class A shares earns a 9% 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% coupon. However, Class B shareholders have greater overall return potential through their participation in the disposition of fund properties.
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- Florida Attracting People, Business at A Fast Pace. businessfacilities.com™. (n.d.). Retrieved June 14, 2023 from https://businessfacilities.com/florida-attracting-people-business-at-a-fast-pace.
- CoStar, 7 February, 2023, https://www.costar.com/article/384748660/us-residents-flocking-to-florida-send-rent-and-home-prices-soaring.
- 2020 Florida Population Growth. fdot.gov™. (n.d.). Retrieved June 16, 2023 from https://fdotwww.blob.core.windows.net/sitefinity/docs/default-source/planning/demographic/2020popsum.pdf?sfvrsn=8c77f8b0_2#:~:text=Since%20the%202010%20Census%2C%20Florida’s,14.9%25%20over%20the%20time%20period.&text=Figure%201%20depicts%20the%202020,in%20population%20for%20each%20county.
- Broward County’s Year-over-Year Job Growth Trend Continues with a 36,300 Job Gain in November 2022. www.gflalliance.org™. (n.d.). Retrieved June 15, 2023 from https://www.gflalliance.org/news/2022/12/19/press-releases/broward-county-s-year-over-year-job-growth-trend-continues-with-a-36-300-job-gain-in-november-2022.