The Meridian Apartments, 360 Units, Jacksonville, FL
How We Got It
We acquired The Meridian in Jacksonville FL in August of 2015. Meridian had a high rate, amortizing, low LTV CMBS mortgage maturing in a few years, and that debt had to be assumed. This narrowed the bidder list by more than 90% because it undercut early-year cash returns. Second, the equity check needed to close was thick, and many private groups didn’t have the firepower to raise the capital needed to close on this 360-unit 1980’s Trammel Crowe-built diamond in the rough. Third, the Arlington submarket was out of favor in 2015 when we closed. Arlington was once a top suburb, but it fell from grace and was making a slow and steady rebound that other bidders didn’t recognize because the local mall was mostly shuttered when we closed. The mall changed hands shortly after closing and reopened shortly thereafter. Last, Arlington had mostly older, smaller homes–hence, weak schools–leading to middling demographics that most sponsors avoid.
Investment Rationale
First, the entry basis was low, owing to the debt assumption as noted above. Second, while Arlington wasn’t held in high regard, it’s perfect workforce housing. It is arguably #1 for job proximity, with great freeway access, and strong area retail. It sits close enough to the growing Mayport naval base to attract more than 20% military families. It’s close to downtown, and close to Jacksonville’s thriving port. Third and most important, the Meridian was a poorly managed asset that had obvious physical neglect. We rehabbed the asset and won Rehab of the Year for North Florida. We took bad debts down from 3+% to 0% by repositioning what had been a challenged tenant base. Fourth, our comp work suggested rent growth could far outpace other assets we underwrote at that time. Last, the fundamentals of Jacksonville were explosively favorable–top job growth rate and hence exceptional apartment absorption, combined with a thin supply pipeline.
What We Did
We undertook more than 100 discrete fixup and enhancement projects including a full rebranding. In the process, Meridian became the submarket leader, posting premium occupancy and premium rents beating nearby assets that are more than 15 years newer. We have the only “A” rated staff in the submarket. Our peers are weak B and weak C operators. We need look no further than our adjacent peers–Park at Villa Veneto and The Colonnade–who post lower rental rates despite comparable bones and better road frontage.
Results
The Spyglass syndicate is patient and well-educated, and understand that a lot of money can be made when we find assets other folks don’t understand or don’t favor for silly reasons. The assumed debt was unattractive but was refinanced within 3 years. That put more than 100% of investors’ initial investment in their pockets before the 3rd anniversary from closing. At today’s valuation, this is already a 3-banger.