What if you could invest in a gorgeous, 2025-built brand new 324 unit apartment deal where $31.5M of equity is junior to your equity?
That’s exactly what we’re opening up with Avondale Commons — a unique opportunity where new investors step into a very senior position in the capital stack.
This is not a construction project. This is a brand new 324-unit, fully built multifamily asset with a certificate of occupancy — now entering its lease up phase. Avondale Commons is a stunning, highly amenitized trophy asset designed to attract today’s renters.
Due to market shifts (rising rates, slower lease-up), existing investors overwhelmingly voted to make a strategic decision: Allow new capital to come in senior to their equity, with enhanced positioning and resilience.
The investors voted so that new capital wouldn’t just be senior to them in terms of their profit, but would also be senior to them in terms of their capital. So, until the new investors hit 18% per year IRR, the existing investors would not get any of their capital back. Now, that is a great position to be in. A deal of this type is very rare.
We’re hosting two identical live investor briefings for this opportunity — choose the one that fits your schedule:
What’s the likelihood that the investors actually agreed to this? I’m sure even less likelihood that the investors were told “Hey, your equity is completely wiped out”. I also like how these new pref deals are being phrased as like some incredible deal. Hey, the previous investors capital is wiped out, come along for the ride and allow us to charge another acquisition fee and prevent it going back to the bank. Also, this allows us to save face here. Was curious people’s thoughts.
I'm curious if acq guys would even give this a look? Doesn't it look too good to be true?
Did a 30 second search but it looks like the loan is in a CLO. Private credit guys stay winning
Isn't that a mediocre return for a new build that presumably failed a lease up?
I’m no multifamily expert but have personally taken LP stakes in some deals. I think actually achieving an 18% IRR is something most people would sign up for in a heartbeat. I’ve invested in opportunistic deals fundraising at a 30%+ IRR and actually achieved a high teens IRR net of fees and was satisfied. The problem with projected returns is they are numbers on a piece of paper and from what I’ve seen thus far, this doesn’t sound like a sponsor I trust with anything. 18% projected IRR from someone I trust is worth more than a 40% IRR from someone I deem incompetent.
Yeah I was thinking having it capped at 18% on a deal like this is a negative but I guess with the junior equity it would only be so high. And with it being a failed lease up works more in your favor as well.
Realpage is saying the property is 85% but I looked at their website and they're giving away 3 months free. Doesn't seem dire enough to need a bailout so quickly so I wonder what's going on.
In a vacuum it doesn't seem terrible, if it's real. For a development, you've already de-risked the project significantly, no entitlement risk and no construction risk, but now you're obviously taking on the leasing risk and are being told explicitly that's a problem. I'd echo what Pokemon said, 18% isn't bad if it's real.
I haven't dug into this one but in my opinion this syndicator is a marketing firm, not a real estate operator. They raised pref equity for another project in lease up where projections were clearly missed by miles but still claimed to be sitting behind a cushion of equity. Huge OM but no meaningful financials.
I agree - most likely a marketing firm. It is interesting seeing some of these gurus act like an operator but really they are just salesmen. Truth be told, there’s a lot of money to be made in the game of raising money.
And it’s made Day 1 of closing.
My partner was raising about $10M in equity for a $30M deal that had been on the death bed and revived several times over. He consulted an equity raising firm. His deal suddenly became ~$32M+ in all in costs. It got to be where the actual operator (and investors for that matter) was the one making the least money on the whole transaction. The GC (him as well) wasn’t making a profit either. Capital calls are generally looked down upon in construction (lol) so he had to make sure there was a margin of safety there. Suddenly his deal became $35/36M.
Luckily, he found a few HNW individuals and should start construction soon.
Don't be fooled by the fact that at one point in time, there was initial equity in the deal that they're now calling junior to the new position. If based on today's current market pricing, all initial equity is lost then this new equity is the only true equity in the deal yet #1 you might be starting off with a negative balance if today's deal value lost more than the initial equity contributed and #2 your upside is capped. The key is understanding what the true value of the property is today and frankly I would be very skeptical of anything coming from that particular sponsor.
Lol I just saw they were originally estimating $379,506 per unit all-in. Just north of Avondale in Peoria there is a 2021 deal being marketed right now for $210,000 per unit. I'll let ya'll come to your own conclusions but the writing is on the wall.
100% - the projected exit basis they UW is nuts, though I can see how people could fool themselves back then considering even 80's product was trading at $325k+/door. The fact that this project had total original cap stack of $341k/door even feels high to me for where replacement cost was back then. In any case, I'd be super curious to see what this group's is pitching for projected NOI / cap rate on the even higher basis (post-rescue capital).
Anyway, the $210k/door deal that's on the market currently is the first thing that came to mind when I looked up loan balance on Avondale Commons, which sits at nearly $245k. On back of the napkin math with their current rents & concessions and market expenses, Avondale deal would be low $200k's today...stabilized. The debt fund that has the senior is absolutely impaired right now, and I'd guess the maturity is coming up in August based on the origination date.
On the topic of basis, there was an off-market, pre-stabilized (~60% occupancy) deal in Goodyear last year that guided to $215k and nothing got done. I won't be surprised if we see some West Valley trades under $200k for new-vintage merchant-built product in the next year. A lot of these deals are simply out of time and ops are terrible.
All of West Valley Phoenix, but specifically this pocket/Goodyear, are downright fucked for the foreseeable future. This deal is doing nearly 4 months free when you include the gift cards they're offering.
Even West Valley properties that have been stabilized for years are sitting in the high 80's to very low 90's occupancy. Some lease-ups can't get past 85%. Even today there are thousands of units in the submarket still set to deliver or remaining to be leased up.
Property Managers are trying to drum up traffic and lease approvals however they can...there are deals out there qualifying tenants on 2.5x net effective rent, which in some cases is $1k or lower given the big concessions. My asset managers would lose their shit if they found out PM's were approving on net effective rents, let alone at 2.5x vs 3.0x.
Because of incomes and overall resident quality, bad debt is through the roof across the submarket, in some deals getting into the 2.5 - 5% range. Skips/evictions after they get their 2-4 months free are pretty common, and retention is 35 - 45% across a lot of the deals.
Some of these brand-new deals are also getting shafted on fully-assessed taxes. It wasn't uncommon for product delivering in 2019 - 2022 to have stabilized taxes in the $1,250 - $1,600/unit range. Some of these are now pushing past $2,500. That's $20k+/door value hit.
I could go on and on about how crappy West Valley is right now, and the sponsors/brokers pitching these rescue pref situations are generally full of shit. Common equity has been wiped for quite some time and even construction loans are impaired.
I think we're going to see a lot of assets hitting the market over the next 12-18 months at really juicy basis, but going to be a rough 3-4 years yield-wise in my opinion. If someone has a 7+ year time horizon and can ideally buy all-cash, think there could be some good buys from appreciation standpoint, but it's going to take brass balls to hold through the shitstorm.
haha this is great
queue indian doctor who will cut a 50k check and get 30 back
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