Deer Creek Apartments are a 304-unit multifamily investment opportunity located in Houston, Texas. The target market is made up of young families and young professionals between 18-25 years of age. This property provides has various strengths and weaknesses, and is facing a high level of competition. At CMT Investments, we have conducted a full analysis of the property and we feel it represents a fair and desirable investment opportunity. We plan to evaluate the property through a market analysis, property description, financing and financial analysis to prove if Deer Creek is a good investment.
The Company
CMT Investments is a Texas-based corporation that seeks various financial ventures, but chiefly invests in under-performing real estate assets. Since it's founding in 1995, CMT has set out to pinpoint properties with great potential, and has since become one of the top real estate development and investment companies in both the Houston area and statewide. The company was founded by business partners Chase, Michelle and Trey, all of whom continue to operate the business along side their colleagues. Our diverse experiences in the real estate industry, ability to see potential in property, and our strong sense of values allow us to conduct a financially sound business with savvy and integrity.
Property Description
A property analysis for Deer Creek shows that they offer spacious units paired with modern amenities and pleasing aesthetics. The apartments are relatively new and is extremely well kept. The pictures of the property in the following analysis will display these desirable features. The apartments are easily visible from Imperial Valley Drive. They would not be difficult to find for anyone traveling along Beltway 8. And they are accessible through one main entrance. Deer Creek Apartments offer several units with a variety of floor plans and layouts. Additional value-add potential exists through moderate interior and exterior upgrades that would be available.
Market Analysis
We have conducted a thorough market analysis for the property. The market, which is defined as northeast Houston, offers the resident a small community feel along with the benefits that a big city has to offer nearby as well. It is also conveniently located near George Bush Intercontinental Airport. Because Houston is such a large city with a growing economy and thriving energy sector, the need for multifamily residences will always present. Houston currently is close to a multifamily residence shortage, which will drive prices up due to the lack of supply to meet the demand. Houston is one of the largest metropolitan areas in Texas, and is growing at a very rapid rate. It is currently above the state average in average household size as well as population of individuals under 18, but below the state average in population of individuals over 65. All of these factors create a large consumer market both now and in the future.
Financing
CMT Investments will be financing the property though both debt and equity to capitalize on leverage opportunities. Information was gathered from the current property manager to develop accurate information for the property’s current financing. Using a loan-to-value ratio of 70%, the economic value approach and a 9% cap rate, our maximum principle loan amount will be $4,289,304. After speaking with the loan officer, the interest rate will be set at 5% annually. The residual capitalization rate was estimated by the current property manager at 10%. We intend to sell the property after 10 years for a profit. Selling costs and fees are estimated to be 3% of direct capitalization residual value of $23,872,787.
Financial Analysis
We have conducted a detailed financial analysis using both the Direct Capitalization and Discounted Cash Flow methods. While these numbers vary slightly, we feel the property is a good investment overall. The leveraged and unleveraged NPVs were both positive which reflects a good investment. The property seems to be a good and profitable investment based on our analysis.
