Park Hill Apartments : Renata

Total number of units: 288

9939 Fredericksburg Road
San Antonio, Texas 78240

PROPERTY DESCRIPTION
Panther and Knightvest acquired the Park Hill apartments on June 1, 2017 which marked our 13^th acquisition with Knightvest. The property is located in San Antonio, TX, across the street from the headquarters of USAA. The Property was constructed in 1983 and had been under the same ownership, Resource Residential, since 2008. The property had been well maintained but had not received value-add capital for upgraded interiors. The common areas and exterior needed improvements including painting, carpentry work and replacement of cedar siding with hardi-plank. The property had excellent value-add potential through rebranding, new signage, upgrading the unit interiors and common areas, and implementing better management.

ACQUISITION PROCESS
The property was put under contract on April 6, 2017. Knightvest financed the property through Freddie Mac for 7 years, 36 months of interest only at a 4.13% fixed interest rate. We closed on June 1, 2017. Panther provided approximately 79% of the total equity and budgeted an additional $3.4M for capital improvements.

PROPERTY HISTORY
Park Hill was a steady performer out of the gate, with modest rent growth in year one and distributions that commenced on schedule in December 2017 at a 5% annualized coupon rate. The initial plan called for 25% of units to be upgraded to Knightvest’s highest level Granite upgrade package, but the local market was not receptive to this solution, and Knightvest pivoted to a more modest Full upgrade package, which was well received. Over the ensuing 2 years, the property experienced solid rental growth and distributed in the 5-7% range. Then, with the onset of Covid, rent growth stalled and distributions were suspended from March 2020 through December 2021.

The San Antonio market began to heat up in late-2021 with strong rental growth, which enabled the property to resume distributions at 5% coupon rate. A second attempt at Quartz upgrades was successful and property rent growth expanded materially. Despite solid rental growth performance over the past 2 years, distributions were again suspended in November 2022 to fund improvements ($250,000) to the foundation in one of the buildings on the property. Distributions remained suspended through the sale of the property.

Over the course of the 6.8-year holding period, the property has averaged 95% occupancy and rents have increased from $775 at acquisition to $1,023 (+32%) today. At the time of sale, 276 units had been upgraded, or 96% of total units.

EXECUTION AND SALE
The property was marketed for sale in September 2023 with 111 confidentiality agreements signed and 13 property tours. Ultimately, 10 bidders placed offers on the property and the deal was awarded to 29^th Street Management. Knightvest and the buyer, 29th Street Management, executed the Purchase and Sale Agreement (PSA) on November 16th for the sale of the property. The buyer utilized their extension and officially closed today, February 21st, as per the contract. During the process, the buyer negotiated a price reduction for further foundation repairs which were needed. The final sales was below our original underwriting which projected an exit at the end of year 5 (June 2022) at $105,502 per unit. While the agreed upon price did not ultimately meet initial projections, the property is now 40 years old (1983 construction) and needs further capital improvements. We felt the best course of action was to sell the property at a profit to a well-capitalized buyer that can execute a comprehensive capital improvement strategy.

Based on the agreed upon price, Panther investors should expect to have received a 5.8% average annual return and a 1.40x multiple on invested capital (MOIC) over the 6.8-year holding period. Panther LP’s received 1.18x MOIC at closing with an additional 0.06x to be paid after the escrow settlement and final wind up. Investors had previously received distributions of 0.16x, bringing the total MOIC to 1.40x.