Fairways at Peachtree City, 182 Units, Peachtree City, GA
How We Got It
Spyglass acquired the property in August of 2014. At the time, no one had paid $100,000+ a unit in sleepy south Atlanta. The sales comps didn’t support our valuation. But within 6 months of closing, Venterra paid $135,000+ a unit for the neighboring Balmoral Village, an older and inferior asset. That acquisition underscored that we “bought right.”
Investment Rationale
Fairways sits in Peachtree City, GA, the most affluent bedroom community in south Atlanta. Local system schools are exceptional, with many receiving the Georgia School of Excellence designation and two named National Blue-Ribbon Schools. The local jobs base is strong, buoyed by the asset’s proximity to Atlanta Hartsfield-Jackson International Airport (which supports some 58,000 jobs) and the County’s designation as one of only five Foreign Trade Zones in Georgia allowing Peachtree City to attract many international manufacturing firms. Local demographics were the best among Spyglass’ portfolio at that time, underscoring the upside of a full-scale value-add overhaul of this 1995 asset originally built as Low-Income Housing. We recognized the an exceptionally low multifamily inventory in local Fayette County, where apartments represent just 8% of the total housing stock or 1/4 of the national average, and more importantly, a moratorium annually-renewed for thirteen years on new apartment supply in a town that was once voted America’s most patriotic city.
What We Did
Converted by its former owners from low income (i.e. below market rent) to conventional (market rent) housing, The Fairways at Peachtree City had the most affordable rents of the six apartment communities in Peachtree City and the most challenging tenant base. Spyglass completely repositioned the tenant base, a process that took more than 36 months to complete during which time the property’s operating performance suffered. Every unit was upgraded and more than $2mm was spent on exterior and amenity enhancements.
Results
We sold at $173,000 a unit versus our entry price of $102,000 a unit. This 1995 product was built as Low-Income Housing, so the exit was nothing short of exceptional at ~130% of replacement cost for aged product with 8-foot ceilings, a cramped site plan, and under-sized amenities, with an A-frame clubhouse. We first realized value through a 100+% cash-out refinancing in February of 2019. By late 2019, we fielded an offer far above our target sales price. Every day we held, was another day we bought the deal again; and since we’d never buy Fairways at $173,000 a unit, we had no hesitation selling at this valuation. Being a disciplined seller is a must. The sale was a debt assumption which made the sale nearly frictionless with no prepayment penalties and no local transfer taxes. Fairways produced a 20% IRR and 2.11x Return on Invested Capital net of exit costs and net of the Sponsor Promote.
Tax Consequences
Almost 100% of the investors elected to roll into a 1031 Tax Free Exchange. The replacement assets are in midtown Nashville across the street from Vanderbilt University in the heart of downtown and within the vibrant medical district, the city’s largest employment sector.