PRESERVE & VALLEY AT MILL CREEK TURNING LEMONS INTO HARD LEMONADE

If you recall, the Valley was fully (master) leased by Shaw Industries. They let us know, primarily due to Covid, their corporate training program plans were not set for 2022. As a result, they would not be renting any units under a master lease going forward.

Freddie Mac, our lending partner, made a legal omission on our loan documents. They wanted us to hold $407,000 in reserves for the life of the project but did not include terms. This meant they could not sell the loan to another financial institution. Although this was not our problem, it really was. If Freddie Mac could not fulfill their business plan, we would have damaged the relationship with a very long-term strategic partner. Hence making additional acquisitions or refinances challenging. Moreso, this could cause our property to gain a bad reputation.

First, Shaw Industries not renewing was a GIFT to all of us. We were now able to renovate 100% of units and rent them at market rate. That meant we took rents from $780 to $1,175 in 2-3 months rather than 18-month plan. We completed renovations and leased 95% between January and April.

Second, the loan. Because we raised rents so quickly, it allowed us to negotiate with Freddie Mac and help them see that by April the loan would be even stronger. Rather than paying Freddie Mac an additional $407,000 in reserves that would not be returned, we were only required to pay $250,000 in reserves, which will be released one month after we hit our performance target. In addition, we have a $157,000 construction guarantee to assure we perform the improvements which allows us to stay in control of the money instead of using a draw. As a result, there will not be any negative hit to any of our financials as they were presented to you.

The Valley Apartments was purchased as part of the Dalton portfolio for $3.52M. With the immediate rent increased described above, it’s now worth ~$6.05M, a $2.528M increase. In other words, your Valley Apartment complex became worth around 75% more by April 2022! Congrats!