How We Got It
Spyglass acquired Carlyle of Sandy Springs in November of 2014. The property is in Sandy Springs, GA, an affluent city within the Atlanta MSA that is centric to strong employment bases in all directions. At the time, 1970’s vintage assets were out of favor and the property had a very challenged tenant base (20% of units were LIH).
When we closed, Sandy Springs had just posted YOY rent growth that ranked among the top 10 submarkets, so it was both a momentum “play” and a value-add play. We love the abundance of office space and destination shopping in the nearby Perimeter Center to the north and to the immediate south in high-end Buckhead. While the property is an older vintage (1972 year of construction), Carlyle features a lower maintenance all-brick exterior, windows and tubs that were replaced in 2005, and a newer parking deck (also 2005). That allowed Spyglass to focus our capital on areas that would help drive NOI higher. Carlyle boasts some of the largest and nicest floor plans in the submarket (1,300 average SF) and benefits from having 25% 3-bedroom units or about 3x the submarket average. It also boasts nearly 60% townhomes which are both scarce and highly desirable to area renters. During diligence, it became clear that Carlyle was the rare offering that had been managed primarily to curtail delinquencies owing to its troubled history pre-2005. A little digging revealed turnover was just 25% which along with high occupancy which made clear rents could go far higher.
What We Did
What really attracted us to Carlyle was a management play. The prior owner did a lot of heavy lifting yet left a lot of meat on the bone. We replaced all staff, upped the marketing budget, and pushed rents $75 a unit immediately after closing. The rent bump met no resistance, so we knew almost immediately that our investment thesis was sound. We then overhauled the asset. We spent more money on amenity improvements than any of the other seven assets we closed before Carlyle. We redid unit interiors. We brought in an A+ staff. We repositioned the tenant base, working out a friendly and compassionate exit for the 60+ units occupied by a local charity.
First, looking at rent growth, rents are up 7.2% p.a. since we closed or about 2x national levels. The 2BR TH’s that rented for $929 pre-closing now go for $1,600+ (as of August 2021). Prior ownership was overly focused on curtailing delinquencies, which led to flat renewals to retain paying tenants and that continued for years despite great area rent growth in all directions). Second, we rejected an offer from an area home builder that was $8mm more than we paid three months earlier. In other words, in 3 months, we already knew enough to reject a 50+% gain on our original equity investment (a wise investor once told me you “can’t eat IRR”). Third, we completed the quickest cash-out financing possible, closing a $6.1 million supplemental loan at the 12-month anniversary of acquiring Carlyle. Fourth, as of late 2019, less than 5 years from the date we acquired Carlyle, investors have received cumulative distributions higher than their original capital investment. Last, a July 2021 LOI shows that investors are sitting on a 4x net ROIC already.