INVESTMENT STRATEGY
Our sole focus on multifamily properties is the first step in Conjoin Capital's fundamental purpose of safeguarding the capital of our investment partners. The company's objective is to enhance Class B and C apartment communities across all secondary and tertiary markets. Multifamily has historically offered the strongest upside potential during upcycles while also being the least volatile real estate asset type during downturns. Class B and C multifamily properties offer some of the most alluring investment opportunities because of the discrepancy between the high and rising demand and the constrained new supply of these units.
Acquisition Criteria
The following criteria is used to identify undervalued multifamily properties for acquisition, value optimizations, management and disposition.
MARKET SEGMENTS
- Age: The 18-35 year old market segment 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 multifamily living
PROPERTY CRITERIA
- Multifamily 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: 50+ units in the $4MM – $50MM range
- Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage ratio of 1.25
- Type: C- to B+ properties located in C- to A areas
- Property Vintage: 1975 or newer
- Location: Emerging market areas with indicators for strong near and long-term economic growth
Emerging Markets
Choosing the “right” multi-family apartment complex to acquire is a critical aspect of Conjoin Capital, LLC’s investment strategy. We are diligent in our exploration and focus on opportunities in emerging markets, where jobs and local economies are expanding.
ERMERGING 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
There are many indicators and a lot of research that goes into identifying an emerging market in the US. We start out by performing thorough market research that includes the following areas:
- Job Growth Report
- Population Growth
- Path of Progress Reports
- Local Economic Reports & Trends
- Chamber of Commerce Reports
Acquisition Practices
Building relationships with neighborhood listing brokers to gain access to their "pocket listings" and other Bank Owned Properties is something Conjoin Capital, LLC takes great satisfaction in (REO). As part of our searches, we approach owners directly rather than waiting for properties to hit the market.
Each asset goes through a thorough due diligence procedure to verify its physical and legal status as well as its valuations to ensure that investment plans are feasible.
The debt and equity financing plan is created early on in the asset evaluation process based on a variety of variables, including the type of property, the scope of renovations, the anticipated hold time, and investor goals. Depending on the specifics of the business plan, each asset is normally retained for 5 to 10 years.
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 it 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 cause by owner self-managing
- Poor supervision of management companies
- Deferred maintenance
- High vacancies
- Below market rents
Some examples of value-add plays we implement at Conjoin Capital, LLC:
- 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 will decrease overall operating expenses.
- Improve unit interiors with new paint, appliances, countertops, and floors
- Adding a coin laundry facility to the complex
- Below market rents
Path of Progress Strategy
A Path of Progress is where the greatest amount of building and development is currently happening, or soon to be.
A PATH OF PROGRESS IS WHERE:
- Properties rapidly shoot up in appreciation
- Majority of new construction is going on
- Families and individuals are moving into the area
Investing in the Path of Progress yields the greatest returns in a short period of time.