7421 Burnet Road, Suite 300-291, Austin, TX 78757
512.590.8315 phone 512.590.8313 fax
Hillcrest Oaks Apartments - Hillcrest Oaks is a 140-unit, Class B- apartment community developed in 1972. The property consists of 12 two-story buildings on 4.84 acres (28.90 units/acre) and is located near Austin's hip SoCo district just 2-1/2 miles south of the CBD.
The seller of the asset was struggling with performance issues due to substantial road construction along South First Street on which the property was located and a lack of management focus. The seller was located in Florida and Hillcrest Oaks was their only asset in Austin. Falcon Southwest had been targeting this part of Austin due to its improving demographics and rapid gentrification and we were able to utilize a key broker contact to make an off market offer for the property. Rather than refinance the property and wait out the road construction, the seller decided to seek a quick sales transaction with a local buyer who was familiar with the market.
We purchased the 65% leased property for less than $30,000/unit in late 2004. At the time of acquisition, the submarket was 89% occupied and the road construction was nearly complete. Our strategy was to complete a modest remodeling of the property (approximately $3,000/unit) during the remaining period of road construction and then lease the property back to the high occupancies that it enjoyed prior to the rebuilding of South First Street. We also believed that the demographic changes to the area would lead to significant rent increases over our expected hold period.
Within nine months of acquisition we brought the occupancy of the complex up to 94% and the submarket experienced a significant increase in rental rates. During our ownership period, the South First Street area transformed from a secondary location to a highly desirable South Austin neighborhood and significant investor interest was focused on this part of town. We sold the property in mid-2006 after a short hold time of 23 months at a price in excess of $48,000/unit. This project was bought without any financing and this sale generated an UNLEVERAGED internal rate of return in excess of 20%.