Key data

Project name

Overlook at Bear Creek (FULLY FUNDED)

Locattion

Overlook at Bear Creek, Dallas, Texas, USA

Initiator

REALIANCE USA B.V.

Local partner

InterCapital Group (ICG)

Property Manager

Dayrise Residential

Category

350 ‘Class B’ garden style rental apartments (1984)

Expected investment term

5 year

Exit strategy

Sale to a third-party investor

Total Investment

US$ 50.237.950 (of which US$ 921.500 deferred payment)

Bank loan

US$ 34,600,000

Equity Intercapital AC Overlook LP (Project LP)
US$ 14,716,450 

– Overlook at Bear Creek Capital LP US$ 10,650,000
– Overlook at Bear Creek German Capital LP US$ 2,500,000
– ICG and REALIANCE US$ 1,556,450

Structure

Direct participation or possibly through a separate LLC in Overlook at Bear Creek German Capital LP, of which:
– Mezzanine capital US$ 1,700,000
– Equity US$ 8,950,000

Participation

Minimum of US$ 125,000 (426 participations of US$ 25,000)

Distribution (per quarter)

7% per year, from the 2nd quarter after take-over

Projected gross total return

80% in 5 years

Projected gross return (ROI)

16% per year

Unique selling points

Overlook at Bear Creek is the eighth project in which ICG and REALIANCE collaborate. The strategy of acquisition, renovation and management in comparable projects has proved itself.

Dallas/ Fort Worth is one of the most dynamic regions of the US and has a favorable business climate for companies as well as good living environment for its inhabitants. The metroplex has shown a consistent employment growth over the last few years. After an employment decline in 2020 due to the corona crisis, an above average recovery is expected in coming years, which results in a stable demand for rental apartments.

The location of Overlook at Bear Creek is excellent. On the one hand it is close to DFW International Airport (eleventh largest airport in the world with 69 mio. passengers per year) as well as the American Airlines headquarters, which airlines resumes 74% of her normal schedule in July 2020. Furthermore, the complex is situated in a popular ‘master planned community’ Bear Creek. With the recently widened Highway 360, the metroplex is well connected to employment centers and retail, but also to Dallas CBD (Central Business District) and Fort Worth CBD.

The ‘Class B’-complex with 350 efficiently designed apartments has an interesting mix of six different 1BR and 2BR apartments. The 1BR apartments range from 592 sq.ft. up to 831 sq.ft., with which the rents are within the budget of a large group of tenants. The 2BR apartments range from 926 to 1,029 sq.ft. and consist for a large part of ‘townhomes’. The average income in the submarket offers the possibility to upgrade the apartments to a higher standard.

The complex will be taken over from a fund that has a maximum investment horizon of approximately three years. The acquisition price is based on two appraisals from
the summer of 2019 and due to corona a discount of 3% (US$ 1,425,000) has been negotiated.

Positive developments in the lease since the summer of 2019 including the last months and an improvement in financing conditions have not been taken into account in the purchase price. In addition, it is a benefit that ICG/ Dayrise Residential already manages the project, since it knows the complex (including the quality of the tenants) well. In addition, taking over the project entity can result in a tax benefit in the coming years, which is not taken into account in the financial model.

As investor and property manager, the local partner is very experienced in similar projects in the south of the US, in which they built up a portfolio of almost 17,000 apartments. With around 7,000 apartments, Dallas/ Ft. Worth is their home market.

The defensive risk profile is partly based on a 10-year fixed rate loan with leverage of 68.9%. This eliminates the financing risk during the investment period and the ‘exit’ can be chosen at the right moment in the cycle. Because the long-term interest rates have recently declined, the expected interest rate is below 3.5% per year. Further, the loan is interest-only in the first five years.

Current physical occupancy rate of 96% in combination with ‘value-add’ potential provide an expected cash-on-cash return of 7% on an annual basis starting from the second quarter. At the exit it is expected that the return including sales result can be 74.2% (14.8% on annual basis).

ICG and REALIANCE will participate for US$ 1,566,450 (12.5%) in the regular equity. In addition, the partial payment of fees as well as 1% of the agreed purchase price (by ICG) will be postponed.

For more information you can reach REALIANCE at +31 (0) 20 21 03 180 or invest@realiance.nl