Stone Ridge Closing Announcement

Stone Ridge Apartments

Ballast Rock Real Estate is excited to announce the acquisition of Stone Ridge Apartments, the first asset acquired by Sunbelt Multifamily Fund III (“SB3”).

Stone Ridge Apartments is a 176-unit community built in 2001, located in the affluent submarket of Homewood in Birmingham, AL. Originally built as a student housing complex, the asset has undergone more than $2.3mm in renovations over the past three years as part of the previous ownership’s property-wide renovation program to convert it to a conventional market-rate multifamily apartment community.

Our plan is to further add to the community’s amenities, improve recent in-unit renovations, and leverage Sunbelt Properties’ professional property management team to reposition the asset within the local marketplace.

Transaction Highlights

Significant Discount to 2023 Guidance

We first saw this asset in April of 2023 with a guide price of $30.8mm. At the time, we indicated that we were interested in the property at ~$24mm. 10 months later and after a material improvement in the property’s performance, we put the asset under contract for $23.7mm, a 23% discount to the initial guidance from 2023.

In cap rate (net operating income divided by price) terms, that equates to us closing today at an underwritten pro-forma Year 1 stabilized cap rate of 6.0% versus a 4.3% (pre-stabilization) pro forma Year 1 cap rate when we originally looked at the asset in April 2023.

Attractive Cost Basis

We are acquiring Stone Ridge for $134.6k per unit. While this cost basis is higher than average compared to our existing portfolio across Sunbelt Multifamily Funds 1 and 2, it is a significant discount to comparable in-market assets which, as can be seen from the transaction data below, are generally older properties with lower average rents.

Major Investment by Previous Owner

The seller spent significant capital to convert Stone Ridge from student accommodation to market rate, conventional multifamily. As a part of that conversion process, the property saw a combined investment of $2.3mm on interior unit renovations, repainting and amenity improvements.

Additional Upside from Repositioning

While the property benefited significantly from the conversion, during our comprehensive due-diligence process, we found that the seller had cut corners in certain areas, so our business plan calls for an additional $2.2mm in capex. This will allow us, among other things, to further renovate individual units, replace roofs property-wide, and continue to add on-site amenities.

Conclusion

While the previous owner had begun to successfully reposition the property, we believe that with further targeted capital expenditure and professional management by our in-house property manager Sunbelt Properties, there is additional upside to capture as we take the asset to the next level.