7421 Burnet Road, Suite 300-291, Austin, TX 78757
512.590.8315 phone 512.590.8313 fax
Villas at Bunker Hill - Villas at Bunker Hill (f/k/a Alexan Bunker Hill) is a 398-unit luxury infill apartment community developed by Trammell Crow Residential (TCR) in 2007. The property is located on 8.19 acres and consists of 2 four story buildings and a 630 space structured garage. Amenities include an exquisite marble appointed clubhouse, two business centers, two resort style pools and a top-of-the-line fitness center with an on-site trainer and massage therapist. Building exteriors boast a high percentage of brick, with the remainder Hardi-plank alongside pitched composite shingled roofs. Unit interiors feature granite countertops in the kitchen and bathrooms, bullnose corners, roman tubs, vinyl plank wood flooring, designer hardware, pendant light fixtures, black appliances and crown molding. The unit mix is focused towards the young professional demographic with 64% one bedrooms and 36% two bedroom units, with an average unit size of 975 square feet.
TCR developed this infill asset at the peak of the last market cycle, acquiring and tearing down an existing industrial building in 2005 in an attempt to deliver the property in conjunction with the completion of the I-10 expansion. Project lease up struggled at inception due to the many nearby construction projects including the construction underway at the adjacent retail center and improvements to Bunker Hill Road. This slow resulting lease up coupled with the asset's overleveraged capital structure (including mezzanine debt) resulted in TCR being "out of the promote". With their economic position effectively eliminated, TCR has been managing this project towards stable cash flows at the expense of pushing rents. Falcon Southwest identified that the effective rents at the property were $200-$300/unit below comparable assets.
We purchased the asset in the Fall of 2010 for slightly more than $110,000/unit which represented almost a 20% discount from TCR's basis in the project. Our strategy was to increase the project's effective rents over the first 36 months to be equal to effective rents at the competitive properties at the time of acquisition. This is achievable due to demand-side pressure from anticipated new employment related to the completion of nearby developments (particularly the new hospital) coupled with the lack of new development in the area (at time of initial contract Houston only had 1,100 units in the development pipeline).
Almost immediately after acquisition, the oil and gas sector of Houston started seeing significant employment increases. Given the property's close proximity to the Energy Corridor (I-10 West), rents and occupancies in the area began to increase dramatically. That rental growth in turn attracted numerous apartment investors to the submarket which resulted in driving property prices higher. We marketed the property for sale in the Fall of 2012 and sold the asset in December 2012 for a price in excess of $140,000/unit after a hold period of 26 months. This investment produced a leveraged internal rate of return in excess of 30%.