Total number of units: 432
3777 E McDowell Rd
Phoenix, AZ 85008
Panther and Knightvest acquired The Indigo Palms Apartments on November 5, 2019, for an all-in purchase price of $194,542 per unit. The property was located in the Downtown Phoenix submarket of the Phoenix MSA in a central location near Sky Harbor Airport and Downtown Phoenix with quick access to major thoroughfares including Interstate10 and Highway 202. The property was built in 2000 and while the common areas had been well maintained, interior upgrades had not been undertaken. The operating plan for the property was to make modest renovations to the common areas with heavy renovations of the interiors, thereby narrowing the market rent gap, and ultimately to sell the property for $238,245 per unit in 5 years (2024).
The Property had been owned by a southern California based owner, since 2013. This was their only Arizona property and while the property had been well maintained; the owner had not re-invested capital in the interiors of the units and as a result, failed to fully participate in Phoenix’s explosive rental growth. There was opportunity for value-add with this property given its central location combined with a significant rent gap of ~$260 for nearby garden style properties and $500-600 for new development. The capital budget for this investment was $6,784,000 ($15,704 per unit) and included adding windows, removing walls in the leasing center in order to brighten its appearance, and renovating the fitness center with a new paint scheme and equipment. The building exterior was painted and cabanas with TVs were installed at the main swimming pool. At the time of sale the property was 98% occupied and about 250 of the unit interior upgrades were completed. These upgrades increased in-place rents from $1,041 at acquisition to $1,251 (+20%) in May 2021 (1.5 years). A diligent focus on expenses allowed the property to exceed its operating income projections which allowed us to make distributions earlier than anticipated at a higher percentage. The property was paying 12% annualized coupon in year 2 prior to sale vs our original plan of 7%.
EXECUTION AND SALE
The property was marketed for sale on May 27, 2021, with a call for offers on June 24, 2021. The property received very strong interest from both institutions and local groups and was ultimately awarded to a Dallas based buyer for $296,000 per unit ($127,875,000), far surpassing our underwritten year 5 exit price of $238,245. Panther LP’s received a 47.51% average annual return or a 1.91x multiple on invested capital (MOIC) over the 1.9-year holding period. These returns compare favorable to our original underwriting of a 15%-17% average annual return and a 1.79x multiple over a 5-year holding period.
This sale exceeded our pro-forma projections providing a 1.91x multiple to Panther FW Investors and an annual average return on investment of 46.72% over the 23-month holding period.