Key data

Project name

View at Estancia (FULLY FUNDED)

Location

Estancia Hill Country, Austin, Texas

Initiator

REALIANCE USA B.V.

Local partner

GenCap Partners, LLC (GenCap)

Category

Development of 340 ‘Class A+’ sustainable garden style rental apartments. Land position of 2 additional development plots belonging to the plan, totaling 43.9 acre (650 units).

Expected investment term

Development: 3.5 years
Land position: 2 to 4 years

Exit strategy

Ontwikkeling: Verkoop aan een (eind)belegger
Grondpositie: Ontwikkeling vervolgfase en/ of verkoop

Total investment

Development: US$ 51,800,000
Land position: US$ 4,620,000 at purchase

Bank loan (only for development)

US$ 31,080,000

Equity

Development (GCP CCV LP) US$ 20,720,000
Land position (GCP XXVI LP) US$ ,620,000

Equity through investors from REALIANCE US$ 12.325.000

– Participation in development (GCP XXV LP) US$ 9,842,000
– Participation in land position (GCP XXVI LP) US$ 21,194,500
– Costs Capital LP US$ 388,500

of which:
– Estancia Capital LP US$ 10,825,000
– Estancia German Capital LP US$ 1,500,000

The amounts between the various providers of capital may vary at the start of the project

Structure

Participation directly or via a separate LLC (for Ltd’s) in Estancia Capital LP

Participation

From US$ 125,000 excl. 3% emission costs (433 participations of US$ 25,000)

Projected gross total return

Development: 58.2% over 3.5 years
Land position: 69.2% over 1 to 4 years
Total: 72.8% over 4 years of average outstanding amount

Projected gross return

Development 16.6% per year (ROI)
Land position: 29.8% per year (IRR)
Total: 18.2% per year (ROI) of average outstanding assets

Unique selling points

The partnership with GenCap offers investors the opportunity to invest with a development partner, also active for institutionals, in the fast-growing state of Texas. GenCap has an excellent track record and a long relation with the REALIANCE’s partners. The recent and neighboring project developed by GenCap, exceeded the budget regarding rents and lease-up velocity, underlining the strong demand in the sub-market.

Austin, the capital of Texas, is a metroplex of over 2 million inhabitants. It is known for its economic dynamic with low taxes, attractive living environment and lively music scene. In addition to being home to one of the largest national universities, Austin is also an important tech hub a.o. housing Dell’s headquarters. Interesting is that many tech companies are benefiting from the current corona crisis. Furthermore, Tesla has recently announced the construction of a giga factory. In recent years Austin has seen a consistently high employment growth and low unemployment rate, resulting in an increased demand for apartments.

Estancia’s location is within the attractive ‘master-planned community’ of Estancia Hill Country in a convenient place near the intersection of Interstate-35 (I-35) and the new East Ring Road (Tollroad 45), so that Austin CBD, the airport and various employment centers are easily accessible.

By the end of October 2020, three plots of land will be purchased for the development of apartments. The land is located directly next to a new to be built hospital (Texas Children’s Hospital). The purchase of three plots provides the opportunity to acquire the land at a price of less than US$ 7,000 per unit which is well below the market value of US$ 15,000 to US$ 19,000. The southernmost plot was sold at a price of US$ 19,000 per unit and will close around the end of the first year.

On the northernmost plot a complex with 340 ‘Class A+’ sustainable apartments will be built with a variety of studio’s as well as 1-, 2- and 3-bedroom apartments, varying from 560 sq.ft. to 1,407 sq.ft (average of 840 sq.ft.), some including built-in garages. The broad ‘unit-mix’ serves a large target group of different renters.

By adding a 10% affordable component (whereby a lower income level must be accepted by the landlord) to the complex, the density of the complex will be optimized without sacrificing on state-of-the-art facilities.

The local partner is highly experienced in the development of similar projects, mainly in Texas. In its history, GenCap has developed nearly 6,000 apartments over the past decades and the projects sold have been successfully completed at an average of 15.5% IRR per year. In addition, GenCap has a good reputation as its role as a real estate advisor for, a.o. Dutch pension funds.

In order to mitigate the financing risk, the purchase of the land is funded entirely with equity and the development of the apartments is financed conservatively. The current leverage for the development is 60% but is lower compared to the current value of the land. In addition to a current interest rate of approximately 4% per year, there is a repayment obligation after a period of four years.

Based on current rents in the market and taking into account an inflation adjustment, a development cap-rate of 7% is applicable. Based on an exit cap rate of 5%, a total return of 53.6% can be realized within a period of 3.5 years. Along with the yield from the land sales, the total return can increase up to 67.2%. The equity for the acquisition of the land position will (largely) be repaid after one year, at which point the return until the beginning of construction will also be paid.

GenCap will participate in View at Estancia for a total of US$ 1,267,000 (5% in both development and land acquisition) of the equity. In addition, REALIANCE will participate with at least 3 participations in the Estancia Capital LP.

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