How We Got It
The asset was calling for offers at the start of the pandemic which caused a few bidders to retreat. We would have also moved to the sidelines, but Park 33 was a 1031 exchange asset and our window to effectuate a tax-free exchange was closing.
Park 33 is a brand new, best-in-submarket asset that represents a 1031 exchange for Paddock Club which was sold in early 2020. The sale price of Paddock Club was almost 2 times the entry price, leading to a 3.5+ times return on initial capital. That, plus seven years of depreciation, lead to a sizable capital gain making a 1031 exchange more compelling. Fortunately, Paddock Club was sold at the pre-COVID-19 valuation without any price adjustment despite closing during the peak of the pandemic. Park 33 has the best floor plans of any Spyglass asset. It’s an exceptional product in a submarket where the second-best asset is single-wide trailer rentals. As a result, Park 33 has an exceptional competitive profile allowing it to achieve 99+% occupancy since closing. Our research showed that similarly sized MSA’s have upwards of 10x more competitive rental properties, and that dearth of quality rental product provides a highly favorable backdrop for future rent growth.
Park 33 benefits from the strongest tenant demographics of any asset we have acquired. The asset attracts the area’s best residents who had a median household income well north of $100,000 at the time of closing–the highest level of any of the 19 assets Spyglass has acquired to date.
What We Did
Village Green, an experienced property manager with other assets in the area, will manage the deal on behalf of Spyglass. They did a great job managing The Paddock Club for us in northern Kentucky. We immediately invested in the leasing office staff. The office had been short-handed, leading to a slower than expected lease-up. We inferred that the lease-up speed was not indicative of the demand for this product but rather too few hands to close on prospects and too few marketing dollars to drive traffic to the property. We increased the online marketing budget more than tenfold at closing. As expected, we can position the property at the top of any keyword search for a small monthly budget since competition for ad space is limited.
It would have been reasonable to assume that demand for big ticket, discretionary consumer durables like RV’s would plummet during the pandemic. But RV sales are up 170% year-over-year. That provides a strong backdrop for strong rental demand. We implemented a 2% price bump at closing which has yet to meet any resistance which runs counter to what we’re seeing in all other southeast submarkets where rental rates are soft or declining due to slower leasing velocity post pandemic.