INVESTMENT STRATEGY

Selecting the right property is akin to choosing the perfect mate – the property must be delicately pursued and thoroughly researched to see if it is a match based on stringent criteria. We look for the diamond in the rough. Not any old building will do.

Our property vetting process includes:

Acquisition Criteria

Emerging Market Criteria

Value-Add Strategy

Path of Progress Strategy

Acquisition Criteria

The following criteria is used to identify undervalued multi-family properties for acquisition, value optimizations, management and disposition.

MARKET SEGMENTS

Age: The 18 to 35- year-old market is 22% of the U.S. population

Income: Renters who earn $40,000 or more annually

Price: Where rent is 30% or less of the median income

Retiring Baby Boomers are scaling down and enjoying maintenance free multi-family living

PROPERTY CRITERIA

Multi-family residential apartments

Pitched roof construction preferred

Occupancy above 80% with the exception of properties that require renovation, providing properties are well-located and present value-add opportunities

TARGET VALUES

Size and Price: 130+ units in the $5MM - $15MM range

Returns: 7-10% Cash on Cash; Minimum Debt Service Coverage Ratio 1.4

Type: C- to B+ properties located in C- to A areas

Property Vintage: 1980 or newer

Location: Emerging market areas with indicators for strong short-term and long-term economic growth

Emerging Market Criteria

Choosing the “right” multi-family apartment complex to acquire is a critical aspect of the Kelley Day Capital investment strategy. We are diligent in our exploration and focus on opportunities in emerging markets where jobs and local economies are expanding.

EMERGING MARKETS ARE CHARACTERIZED BY

People moving in, rather than leaving the area

Jobs being created and moving in rather than lost

Rents and property values rising

Local government dedicated to attracting jobs

Markets starting to absorb oversupply

Through extensive research, we analyze many indicators to identify emerging markets in the U.S. We begin by performing thorough market research of the factors:

Job growth

Population growth

Path of Progress reports

Local economic reports & trends

Chamber of Commerce reports

Acquisition Practices

Each asset undergoes a thorough due diligence process to confirm the physical and legal status of the property and to confirm valuations to ensure achievable investment strategies.

Early in the asset evaluation phase, the debt and equity financing strategy is developed based on a number of factors such as property type, magnitude of renovations, expected hold period and investor objectives. Each asset is typically held 3 to 5 years depending on its exact business plan.

INVESTMENT DISCIPLINE

Asset selection involves a systematic, routine evaluation to identify favorable demand characteristics, i.e. job and population growth, demographic shifts, supply absorption rates, and positive local legislation.

Markets with supply constraints receive most favorable underwriting. Markets with signs of oversupply such as surplus land, changes in zoning, and increases in building permits are avoided.

Value-Add Strategy

Think of a multi-family property as a business, rather than a building. The more income it generates, the more it is worth. When we purchase an apartment complex, we are looking for specific opportunities to increase the cashflow in different areas. These are called “value plays” or “value adding components.”

VALUE PLAYS WE CAPITALIZE ON

Mismanagement caused by owner self-managing the property

Poor supervision of management companies

Deferred maintenance

High vacancies

Below market rents

Examples of value-add plays we implement:

Improve curb appeal by improving landscaping, adding dog parks, carports, etc. Residents will pay more when a property is in better condition and has amenities

Purchasing a property that is 10% or more under current market rents. This gives us the opportunity to increase rents and immediately increase the value of the property.

Implement a water and sewage bill-back system to charge the residents for actual usage. Most apartment owners pay for all the water. When we bill back the residents it helps offset expenses and increase the cash flow. Through this system residents tend to become more frugal and decrease overall operating expenses.