In a recent webinar, Director of Investor Development at Ashcroft Capital Travis Watts broke down a multifamily value-add investment that avoids a major renovation scope but still captures premium rents.
With its comprehensive “mark-to-market” underwriting analysis of this asset, the Ashcroft Team has identified a remarkable opportunity to add significant value to this property very quickly, under current market conditions.
Read on to learn more about Ashcroft Capital, how their latest investment opportunity is unique given current market conditions, and how to get involved (as an accredited investor).
Ashcroft Capital’s Track Record
Founded in 2015 by Frank Roessler, Ashcroft Capital is a vertically integrated multifamily investment firm.
The group syndicates deals in the Sunbelt states and has its own in-house affiliate property management and construction firms, Birchstone Residential and Birchstone Construction, respectively. Investors also benefit from Ashcroft’s in-house procurement process, SureHome, which results in savings of roughly 30% on most material costs.
Here’s a snapshot of Ashcroft Capital’s track record so far, for the 26 deals it has taken full cycle:
| 25.6% Annualized CoC Return to Investors | $1.165B Equity Invested |
| 1.8X LP Equity Multiple | $2.8B+ Assets Under Management |
| 32% NOI Growth | 21K+ Units Acquired |
| 26 Exited Deals | 22.7% Average LP IRR |
*Past performance is not indicative of comparable future results. Market and economic conditions might change in the future, producing materially different results than those shown here. All investments have inherent risks. Additionally, “Track Record” is calculated using full-cycle asset performance only, and the inclusion of performance results before assets are sold, would reduce the reported “Track Record” performance. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance the Partnership will achieve its investment objectives or Limited Partners will receive a return of their capital.
Watts explains a few attributes that set Ashcroft apart from competitors:
- Decreasing turnaround time for renovations (~14-21 days per unit)
- Avoiding supply chain delays via bulk ordering (having warehouses in Dallas, TX)
- Offsetting inflation cost via bulk ordering
- Utilizing an in-house construction team over third parties
- Using less packaging to reduce environmental impact
Can a Class A Property Be a Value-Add Deal?
In commercial real estate, Class A properties tend to be newer buildings located near top employers, and offer high-end amenities that appeal to a high-income resident base. Class B properties on the other hand tend to be older, have lower rents compared to Class A, and often have deferred maintenance and/or are in need of renovation.
Consequently, Class B properties are typical targets of “value-add” strategies, which entail renovating and updating the property to capture higher rent premiums.
However, renovating Class B properties often come with notable risks:
- Renovation risks—Complications are common when turning hundreds of units.
- Inflation risks—Material and labor costs could increase unexpectedly.
- Delay risks—Supply chain, contractor, and permitting delays could occur.
- Age risks—Older properties often require more maintenance and upkeep.
What if you could invest in a newly built property, skip the unit renovations, and still capture rent premiums? Enter Braxton Waterleigh, Ashcroft Capital’s latest acquisition:
Introducing Braxton Waterleigh
What makes this value-add deal unique is that it’s a Class A property built in 2021, comprised of 354 units, and located in Horizon West, one of the fastest growing master-planned communities in the United States. Additionally, it is being acquired below replacement cost, making the opportunity even more rare for investors seeking a deal this year.
Backstory:
Competing properties nearby (also Class A, and newly built) have been in an aggressive lease-up phase over the past few years. To be competitive in the market when leasing up, it is a common practice for low-occupancy properties to offer reduced rents or concessions to attract new residents and fill up the units as quickly as possible. Braxton Waterleigh and its neighboring properties are no exception to this practice.
While below-market rents and concessions are not necessarily a good thing for property owners, there is a silver lining to this deal. Ashcroft Capital is acquiring the property as these competing lease-ups are near complete, and reduced rents and concessions will no longer be needed in the near future as Braxton and its neighboring properties fill up and reach stabilization. This presents a unique opportunity to lift rents to the market level.
The Mark-to-Market Opportunity Explained
Mark-to-market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions.
In the case of Braxton Waterleigh, the rents are currently ~$100 per month below the market level, given the nearby competition in Horizon West discussed. In short, Ashcroft has an opportunity to mark the rents up to the market level as the nearby properties stabilize.
For added perspective, Braxton Waterleigh has already reached 94-95% occupancy. The business plan includes raising rents to market level as leases renew, which in turn, can help boost the property’s value.
To better understand how powerful this is, it is important to understand how commercial properties are valued:
Property Value = Net Operating Income (NOI) / Cap Rate
By raising the net operating income, one can potentially increase the property’s value. For example, an extra $100 per month per unit in rent, would increase Braxton Waterleigh’s NOI by $424,800 per year and potentially unlock an extra $7,723,636 in equity value:
424,800 NOI / 5.5% Cap Rate = $7,723,636
To receive a similar outcome with a traditional Class B property that requires a full renovation scope, the deal could require (for example purposes) a $10,000 renovation budget for every unit, which would total $3.54 million for a 354-unit property like Braxton Waterleigh. Additionally, this added renovation cost does not include renovations for common areas, amenities or any deferred maintenance.
The turnaround time to complete renovations on a 300+ unit property typically takes several years. Rent premiums become available after each unit have been updated, so the process of lifting rents can be much slower compared to a mark-to-market increase that can happen in as little as 12 months or less.
In short, Braxton Waterleigh offers investors the opportunity to invest in a newly built property, avoid the heavy renovations typically required in a value-add deal, yet still capture rent premiums of ~$100 per month.
“That’s the beauty of it all, we can add value to the deal without the challenges and risks associated with the typical renovation process.” – Watts said.
Additional Value-Add Opportunities
Ashcroft Capital plans to add even more potential value-add upside by:
- Adding fences to ground-level units to create added privacy and convenience.
- Installing smart lighting, thermostats, and keypad locks through a tech package.
- Offering in-unit washers and dryers at a premium.
- Offering parcel lockers to residents for package deliveries.
It is worth noting, the mark-to-market rent upside combined with these additional value-add opportunities are controllable by Ashcroft Capital.
In other words, the business plan is not reliant on market conditions improving or interest rates coming down in order to have a successful outcome for investors. The outcome will be driven by factors that Ashcroft Capital can control.
The Horizon West Submarket
As mentioned previously, Horizon West is one of the top three fastest-growing master-planned communities in the United States.
On top of offering residents A-rated schools for all education levels, the community is located just minutes away from Disney World, which employs 77K+ employees. Other major employers nearby include medical centers, advanced manufacturing, aviation and defense, technology and hospitality.
Within a 3-mile radius of Braxton Waterleigh, home values are $453K+, and the average annual income of a current resident at the property is $115K according to CoStar.
The Orlando Market
Zooming out from Horizon West, Orlando is outperforming the nation on several fronts:
| Current Unemployment Rate | 5-Year Projected Average Annual Rent Growth | 5-Year Total Projected Population Growth | 5-Year Average Annual Projected Job Growth | |
| Orlando | 2.9% | 3.3% | 8.2% | 1.1% |
| U.S. Average | 4.1% | 2.9% | 2.6% | 0.6% |
Multifamily Economic Forecast
The recent slowdown in multifamily construction due to rising interest rates and increased building costs has set the stage for a supply cliff over the next few years. In Orlando, new building permits have plunged nearly 45% from their peak in 2021.
If new supply tightens and demand continues to rise, consider what this means for multifamily owners five years from now…
Braxton Waterleigh Deal Details
Here are the Braxton Waterleigh deal details:
| Projected Hold Period | Min. Investment | Loan-to-purchase price | Debt terms |
| 5 years | $25K | 68.3% | 5-year fixed agency at 5.55% |
In addition, Ashcroft Capital offers a two-tiered investment share class structure::
- Class A Shares: 9% annualized coupon with limited equity upside participation
- Class B Shares: 7% annualized coupon with additional equity upside participation
Accredited investors can learn more here. This investment is offered on a first-come, first-served basis, and the deal is expected to close later this month.
Disclaimer: Ashcroft Capital LLC is not an investment adviser or a broker-dealer and is not registered with the U.S. Securities and Exchange Commission. The content shared throughout this publication is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
Any reference to an investment’s past or potential performance is not, and should not be construed as a recommendation or as a guarantee of any specific outcome or profit.
Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial objectives, needs, and risk tolerance.
An investment in the partnership is highly speculative and entails a high degree or risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.
