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Building a portfolio with

Vision, Knowledge & Integrity


2012 AWARDS

BEST TURNAROUND PROJECT WESTMAR STUDENT LOFTS – ATLANTA, GA

by CARDINAL GROUP INVESTMENTS, LLC

SHB 2012 AWARDS – BEST TURNAROUND

STUDENT HOUSING BUSINESS


BACKGROUND

BACKGROUND

Opportunity. CardinalGroup.com

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THE PROPERTY

HISTORY

Westmar Student Lofts (the “Property”) is a 368-unit, 1,214-

In 2006, the owner signed a master lease for approximately

bed institutional-quality student housing community located

45% of the total beds with the Art Institute of Atlanta

in Atlanta, GA.

The Property caters to students attending

(“AIA”). A series of ongoing problems with AIA students

Georgia Tech University, Georgia State University, and the

ensued, ending with a high-profile drug-related incident

combined campuses of Spelman College, Clark Atlanta

where two residents jumped from a 6th story window to

University and Morehouse University – combined enrollment

escape armed robbers. This resulted in a mass exodus of non-

of more than 60,000 students.

AIA residents, and the Property fell into foreclosure in 2009.

The Property, formerly known as MetroPointe Lofts, was

Cardinal Group Investments, LLC (“CGI”) began

constructed in 2005 for approximately $100 million.

investigating the opportunity in early 2010, revealing:

The

Property was financed by a construction loan of

1.  There were numerous operational issues to be

approximately $78 million by Capmark Bank, its largest student housing construction loan ever made. PROPERTY FACTS Name: Westmar  Student  Lofts  (formerly  MetroPointe  Lofts Location: Atlanta,  GA Georgia  Tech  University,  Georgia  State  University,   Universities: Spelman  College,  Clark  Atlanta  University  and   Moorehouse  University Units/Beds:   368  /  1,214 Year  Built: 2005

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BACKGROUND

BACKGROUND

addressed; 2.  Severe reputational damage had been done; 3.  No turnaround could be possible without first cancelling the AIA master lease, removing the problematic tenants; 4. 

The Property had the potential to be Atlanta’s market leader in student housing.

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TRANSACTION

TRANSACTION

Vision. CardinalGroup.com

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RESEARCH & UNDERWRITING The seller negotiated a termination of the AIA master lease and listed the Property for sale with Apartment Realty Advisors. The Property had no list price and many groups took a serious look at the opportunity, but most were concerned with the operational issues and backed away from the deal.

FINANCIAL ANALYSIS

M A R K E T A N A LY S I S

CGI made several trips to the Property where it interviewed

CGI also researched the market to understand the competitive

staff and tenants and attempted to drill down on the

landscape. Its acquisition team visited every competitor in

financials, which were in disarray after three property

the market, extensively interviewed property managers and

management firms attempted to rectify operations over a two

spoke with the universities.

year period and a previous manager had been stealing from

encouraging being that the Property had the worst reputation

the Property. Ultimately CGI had to conduct a full forensic

in the market and was regarded as “dangerous,” “a jungle,”

audit of the financials and build new budgets and operating

“toxic,” “sketchy,” and “unfixable.”

assumptions, much like a ground up development.

indicated that the Property had been effectively black listed,

TRANSACTION

INITIAL INVESTIGATION

The results were less than

The universities

and Georgia Tech indicated it had more than 60 properties on its recommended list of places for students to live but the Property (which is the largest student housing community in the market) was not on that list.

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COMPETITIVE LANDSCAPE

ACQUISITION

The competitive landscape consisted of two purpose-built

As the offer deadline approached, CGI had not yet secured an

student housing communities, on-campus options and an

equity partner, and therefore submitted a JV offer

abundance of high-quality conventional product.

accompanied by a detailed written market analysis and

CGI was

increasingly positive on the location within the West

business plan.

Midtown submarket, which was previously an industrial area

approximately five firms were selected to compete in the best

west of Midtown that was being converted to a chic

and final round, with CGI being the only firm invited who did

residential enclave with high-end restaurants, art galleries and

not make an all-cash offer. The seller indicated they were

nightlife. The conventional properties in the submarket had

impressed with CGI’s level of upfront work and were

an unfriendly tone with student renters, but with a lack of

confident CGI knew the most about the Property. But, only

other options many were forced to live at the properties.

all-cash offers were being considered.

More than 20 offers were received and

TRANSACTION

ACQUISITION

Within five days, CGI connected with Fundamental Advisors

CHALLENGES

LP (“Fundamental”), who was pursuing the Property but

•  Operations and accounting platforms were in disarray.

needed an operator.

•  Major reputational damage had been done and the

prevailed in purchasing the Property on Aug. 31, 2010 with

Property was blacklisted by the universities.

CGI and Fundamental ultimately

an all-cash bid of $33.3 million.

•  Almost completely vacant in a competitive market. •  Economy was in the midst of a recession.

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TURNAROUND

TURNAROUND

Execution. CardinalGroup.com

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CONDITIONS UPON CLOSING

INVESTMENT THESIS

Upon being awarded the deal, the Property was 57%

Despite the negative feedback and the numerous operational

occupied (including 45% master leased to AIA), meaning that

challenges, CGI believed that the Property could be a true

less than 125 people had opted to live at the Property by

market leader in Atlanta’s student housing market. In its

choice, out of 1,214 beds. The Property had a negative NOI

simplest form the turnaround plan was:

of more than $1.7 million expected during the first year of operations. During the due diligence period the AIA residents vacated and the prime summer leasing season ensued with almost no management or marketing.

Upon closing, the

Property was approximately 30% pre-leased for the coming fall semester.

TURNAROUND

TURNAROUND PLAN

1.  Reduce rental rates by approximately 25% to offer a compelling value for renters; 2.  Stabilize operations with a competent and highly motivated team; 3.  Rebrand the Property to escape the MetroPointe name and make substantial improvements to the amenities and common areas;

OPERATIONAL UPON  CLOSING Occupany  upon  Going  Under  Contract: 57% Preleased  Occupancy  Upon  Closing: 30% -­‐$1.7M NOI  (Projected  Year  One):

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4.  Fill the Property up; and 5.  Get rental rates back to market. The implementation of this plan was significantly more complicated as further detailed herein.

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O P E R AT I O N S O V E R V I E W The most important aspect of CGI’s plan was to build a competent and motivated team who believed in what the Property could be and that could enthusiastically sell that vision. Almost the entire onsite team was replaced with skilled professionals who were highly incentivized to make the Property perform. Emphasis was placed on building a “community” by connecting with residents, hosting numerous resident events and focusing on customer service. Security was upgraded and enhanced by adding full-time

TURNAROUND

IMPROVEMENT PLAN OVERVIEW

Atlanta police officers onsite.

C A P I TA L I M P R OV E M E N T P L A N OV E R V I E W Capital Improvements to the Property included: •  Common area upgrades to the front entrance, lobby, leasing office, model units, elevator lobbies and corridors. •  Amenity upgrades to the pool & sun deck, clubhouse, computer lab and fitness center. •  Addition of new amenities including a private study lounge, unmanned convenience store and café and outdoor running track. •  Unit interior upgrades with updated furniture and the creation of “Luxury” and “Elite” units to created product differentiation.

MARKETING & BRANDING OVERVIEW Marketing & Branding efforts included: •  Complete rebranding of the Property from MetroPointe to Westmar including a new name, logo, signage and brand identity. The them of the branding was “New, hip, redefined.” •  New website, mobile website, customized iPad apps for leasing team, collateral materials and advertising campaigns. A community mascot, the Bearcat, was introduced to build identity and to accompany on-campus street teams. •  Use of student residents with film, marketing and artistic backgrounds to create promotional videos, community theme song and viral marketing campaigns. CardinalGroup.com

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EXISTING CONDITIONS

IMPROVEMENTS MADE

Prior to takeover, the front entrance was a locked front door

Complete remodel of the lobby and front entrance with a

manned by uniformed guards behind a plexi-glass booth that

large, inviting greeting desk, open floorplan with stylish

was akin to visiting a felon in prison.

The front lobby

lounge furniture, and a coffee bar / internet cafĂŠ, resulting in

included awkward spaces with dated furniture and the leasing

a boutique hotel style feel. The leasing office was redesigned

office was hidden and inaccessible.

with an open glass wall and clean workspaces modeled after

TURNAROUND

COMMON AREA IMPROVEMENTS

an Apple store. Elevator lobbies and hallways were appointed with original artwork, new paint schemes and seating areas. All model units were upgraded with new accessories and stylish design.

AFTER

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TURNAROUND

COMMON AREA IMPROVEMENTS

AFTER

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This sleek and modern looking leasing office used to be a storage closet and back of the house office within the lobby area. We recaptured this space to

TURNAROUND

NEW & IMPROVED LEASING EXPERIENCE

put a big focus on leasing AND it paid off!

27” iMac’s – “functional art”

Highly Visible From Lobby

Virtual Display Boards (behind reflection) CardinalGroup.com

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EXISTING CONDITIONS

IMPROVEMENTS MADE

The Property possessed the largest pool in the market, but it

Cabanas and a large outdoor grilling area with seating were

was rarely used because the pool deck was barren and un-

added to the pool deck to break up the space and make it

inviting; the fitness center was small and equipment was

inviting for smaller groups. The fitness center was moved to a

broken; the computer lab had only four computers in a dingy;

new location and a new state-of-the-art fitness center was

and the clubhouse was poorly laid out.

built with new equipment and a yoga area. A new, private

TURNAROUND

AMENITY IMPROVEMENTS

library/study lounge was built in the former fitness center

AMENITIES ADDED A self-service convenience store and cafĂŠ was added where

space with group study rooms and quiet study desks. The

the former computer lab was and a running track/circuit

clubhouse was completely redesigned with new furniture and

training course was added on top of the parking garage.

a new layout conducive to hosting events.

AFTER

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AFTER

TURNAROUND

AMENITY IMPROVEMENTS

AFTER

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AFTER

TURNAROUND

AMENITY IMPROVEMENTS

AFTER

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EXISTING CONDITIONS

IMPROVEMENTS MADE

Units were generally in good condition, but the furniture was

CGI introduced “Luxury” and “Elite” units to provide

uncomfortable and all units were appointed the same setup,

additional options for renters. The Luxury units included an

offering no product differentiation.

upgraded furniture package, accent walls and a flat screen TV – achieving an approximate $40 premium per-bed. Elite units

TURNAROUND

UNIT INTERIOR IMPROVEMENTS

have all of the same upgrades as the Luxury units, but also include a larger flat screen TV, throw rugs, updated bedroom furniture, maid service and premium views – achieving an approximate $120 per-bed premium.

AFTER

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AFTER

TURNAROUND

UNIT INTERIOR IMPROVEMENTS

AFTER

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EXISTING CONDITIONS

IMPROVEMENTS MADE

The Property had severe reputational issues and a new image

A new website / mobile website (westmarlofts.com) were

and brand needed to set the tone and for implementing the

built and iPad apps were designed for leasing team members

vision. Before rebranding, it was critical to make physical

to track tenant leads and present floorplans and pictures using

and management changes (outlined above) to the Property so

a medium that would resonate with student renters. All new

it wasn’t the same property with a new name when

collateral was developed and online and print advertising

prospective residents arrived.

campaigns were rolled out. A Property mascot, the Bearcat,

TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

was established to promote events, accompany on-campus

THE BRAND The marketing and branding campaign started with renaming the Property from MetroPointe Lofts to Westmar Student Lofts (coined after its location on the prominent West

street teams and provide a sense of identity. An aggressive referral program and a created the “Outrageous Giveaway Game” promotion were created where residents were awarded points for leasing or referring others to lease. The points were then translated into casino chips at the black tie

Marietta Street). This was a critical step to escaping the

casino night, and chips were traded for prizes including a trip

reputation of MetroPointe and signifying a fresh start.

for two to Las Vegas, iPads, iMacs and more. CGI enlisted the help of its residents with creative film and art backgrounds to produce videos promoting the Property and special resident events (see YouTube), develop a Property theme song and roll out a viral marketing campaign.

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AFTER

TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

WestMarLofts.com

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TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

AFTER

Marketing Handout CardinalGroup.com

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TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

WestMar’s “Bear Cat”. The fearless mascot behind the turnaround. Bear Cat has been on the front lines making residents smile and sign leases for the past year.

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iPad Guest Cards With 1,214 leases to sign, we needed efficiency across the board.

TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

Cardinal Group developed a propriety iPad Guest Card that integrates with our Property Management Software (AMSI) so the Leasing Team did not need to spend endless hours entering thousands of guest cards into the system and could remain focus on what is most important: following up, giving community tours and signing leases!

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SmartPhone Mobile Websites Given the demographic of today’s

TURNAROUND

MARKETING & BRANDING IMPROVEMENTS

students and their ever engrossed existence on their phones, having a strong web presence is essential. That’s nothing new, but what’s often missed is user-friendly, intuitive mobile websites.

Cardinal worked

very hard on making this a reality for WestMar Student Lofts and we believe we executed…

www.westmarlofts.com/m

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RESULTS

RESULTS

Knowledge. CardinalGroup.com

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ANTICIPATED RESULTS

LOOKING FORWARD

•  Net Operating Income was anticipated to be negative $1.7

The rehabilitation, rebranding and stabilization plan is

million in the first year and $2.2 million in the second

approximately two years ahead of schedule. The plan began

year.

in August of 2010 and was completed by August 2011. CGI

•  Occupancy was anticipated to be 40% in the first year, 70% in the second year, and stabilize at 87% in the third year. •  Rents were anticipated to be an average of $486 per bed

is now working to get rents back up to market. Relationships with the universities have been restored and talks of a master lease and other collaboration are underway.

($1.29 P.S.F.) in the first year, and $564 per bed ($1.49

Multiple unsolicited offers have been received to purchase

P.S.F) in the second year.

the Property at values in excess of the Year Five anticipated value.

ACTUAL RESULTS •  Net Operating Income was

RESULTS

RESULTS

-$598,000 (yes, that’s

negative!!) in 2010, $997,000 in 2011 and is budgeted as $4.1 million for 2012. •  Occupancy was 38% at acquisition, and this year the Property was leased up to 100% with a waiting list.

The Property has gained its rightful place as the best-in-class, market leader for student housing in the Atlanta market. There is a vibrant community feel, excitement about the Property and an inspired team in place to continue that trajectory.

•  Rents were $512 per bed ($1.35 P.S.F.) at acquisition and are now $634 per bed ($1.68 P.S.F.) for pre-leasing for 2012-2013.

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RESULTS

WESTMAR OCCUPANCY CHART T HE

“HOC K EY

S T I C K ” WESTMAR

OCCUPANCY %

100.00%

80.00%

60.00%

40.00%

20.00%

0.00% 9/1/2010

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12/1/2010

3/1/2011

6/1/2011

9/1/2011

12/1/2011

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ABOUT US

ABOUT US

Experience. CardinalGroup.com

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IENX VI SE TSITNMGE C NO TS NDITIONS

MANAGEMENT

Cardinal Group Investments, LLC (CGI) is a real estate

Cardinal Group Management & Advisory, LLC (CGM) is a

investment and asset management firm specializing in

full service real estate management firm.

opportunistic and value-added investments throughout the

specialized platform that allows them to handle all facets of

United States. CGI combines a highly analytical approach

real estate management throughout the United States.

with thorough research and reporting systems to deliver

Services include: development, entitlement, construction

superior results and transparency to its investors.

management, property management, accounting and leasing

CGM has a

ABOUT US

CARDINAL GROUP

& marketing. CGM leverages their culture, unique company structure and technology to deliver superior and results and reporting to its clients.

PORTFOLIO Cardinal Group is headquartered in Denver, CO and has an office in San Francisco, CA with ongoing projects in six states. Through its affiliate investment and management companies the firm currently: •  Owns and manages 22 student housing properties consisting of more than 4,100 beds and was the 9th largest buyer of student housing nationally in 2010 per Real Capital Analytics. •  Owns and/or operates 309 units of urban apartments •  Advises on a $3 billion (at full build-out) mixed-use urban redevelopment.

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CONTACT

FOR MORE INFORMATION

Eric Frank, Principal Cardinal Group Investments, LLC (303) 407-4503 Eric@CardinalGroup.com

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