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April Fools?
This month, we found ourselves in a compelling yet challenging 35-unit multifamily value-add deal in the Inland Empire, encompassing quadplexes spread across multiple parcels. This made it a compelling investment due to eligibility for residential financing as well as price per SF valuation. Furthermore, the building ratios allowed us to maximize another 20 units by utilizing state and local laws, much more than the typical 25% state allowance.
At a closer inspection, we uncovered the troubling reality: unpaid rents, missing leases, and myriad severe maintenance issues, including mold and roach infestations, which painted a daunting picture of the task at hand. Towards the end of the day, we hung around the area to get a feel of the market; several renters flagged us down and expressed that they had not paid rent in months and were suing the owners for not providing a habitable unit. In further discussions with residents, it became clear that this area was undergoing a rapid decline, moving decidedly in the wrong direction. The temporary prosperity seen before COVID-19 had dissipated, leaving this part of the city lagging in the recovery phase. Confronted with these findings, we stood at a pivotal juncture. The path before us forked between the allure of potential value creation through strategic renovation and repositioning and the stark immediacy of significant financial outlays not previously accounted for. Leveraging the seller's need for a quick sale, driven by a 1031 exchange, we proposed a strategic adjustment: a $1.3 million discount on the purchase price, aimed at covering the extensive renovations and tenant relocation efforts required to bring the property to our standards.
As we stand in anticipation of the seller's response, this chapter in our journey highlights our readiness to navigate complexities, leveraging challenges as stepping stones toward growth. This deal is now poised to be a significant accelerator for our Q2 activities or an unexpected lesson in the April Fool's annals.
- Chaplon Mu, Principal
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