New Deal Closed in Bakersfield CA

January 16, 2024

We closed on our first value add deal with Frontera Real Estate Investments since August 2022 last month. After a long dry spell, we found a deal that we loved and it wasn’t necessarily in our target sweet spot (buy/sell within 3-5 years). It was a long-term hold in a tertiary market with outsized yield and good operating fundamentals. Here are the top 5 reasons why we liked this deal (for those of you who don’t know me yet, I love lists so please bear with me):

1. The right story: After the prior owner passed away in early 2022, the facility was poorly managed/maintained, leading to high delinquencies, vacancies, and general stagnation. The property is currently 65% occupied, with over 200 delinquent units and in-place rents 40% below market. Comparable properties operate at 90% occupancy in this market.

2. The right price: Purchase price was $93/ft, which represented a significant discount to replacement cost.

3. The right market conditions: With the fear in the market last fall, not many buyers were willing to put in an all cash offer. We used our balance sheet to close all cash and will go out to get debt in a few months once we have executed the beginning parts of our business plan and start to see interest rates drop.

4. The right returns: We intend to 3x+ our investors’ money over a 7-year hold. Upon stabilization, this deal will provide strong yields, with cash-on-cash returns of approximately 10% by year 4. We intend to hold this property for 7 years+ given the strong yield play.

5. Proven business plan: We intend to invest a significant amount of capital in improving the facility, working with professional 3rd party management (US Storage Centers) to take over operations, and carefully monitor the property’s performance with the help of our asset management team. In addition to increasing rents, there are multiple additional ways to monetize the property, including adding solar installation and EV charging and potentially adding more square footage. We executed a lease for solar / EV charging right before closing on the property.

Bonus: Tax advantages with the ability to bonus depreciate ~80% of the investment in 2023 (with the ability to roll forward).

We are searching for more deals like this one in addition to shorter term value adds and ground up development. Our deal flow tends to be lumpy, as we only do deals when we see great opportunities. Shoot me a DM if you want to be added to the distribution list for new deals.