We appreciate your interest in multifamily real estate, and Flywheel Equity specifically. I'm using this newsletter as a way to give you some insight into how Flywheel is managing existing investments, our progress on new opportunities, and the general state of multifamily. Enjoy!
In the Flywheel
The Saddlebrook apartments we have under management in Fayetteville, NC are going well. In line with our business plan, we've renovated two units that were vacant from the previous owner. Here's what those new units look like with new floors, fresh paint, new carpet, and new appliances.
We've rented out this "premium" unit here at a price that is already above our year 3 pro forma estimates. Additionally, the other "standard" unit has been leased out well above the year 1 pro forma estimate. This puts the property currently at 100% occupancy. While it's only one data point, this is a great early validation of our business plan.
It's on everybody's mind, so how is it affecting Flywheel and its investments? The short story is it's way too early to tell what the impact will be. I've seen opinions that say multifamily will be fine (people still need a place to live, right?) and opinions saying it's going to get hammered as workforce tenants lose their income.
My opinion is that we will see an acute impact to collected rents for a few months followed by a gradual return to normalcy. This favors properties and businesses with enough capital to weather big drops in income.
Since we can only control what we can control I will say we are being very conservative in our management approach until we understand the full impact. This means we are freezing rehab expenses, maximizing occupancy by avoiding rental increases for expiring leases, considering various lease incentives to fill vacancies, and deferring investor distributions to keep more cash on hand.
If the COVID-19 crisis ends up being a small blip then we may have slightly depressed returns in the short term with little material impact to long term returns. However, in this early stage of uncertainty we are erring on the side of conservatism and capital preservation. We believe that is the right approach and best way to protect our investors' funds.
If you are an existing investor in a Flywheel property you will have already received a more in depth explanation from the management team.
In the last few months we've reviewed and underwritten over fifty opportunities, have walked three, and had an agreed upon LOI on one property. Unfortunately, we had to back out of the LOI due to the condition and amount of deferred maintenance.
If you want to see how glamorous it is to walk a property, here are some pictures from those visits:
You learn a lot by being inside so many people's homes. In one of our future newsletters I'm going to try and capture some of my thoughts here, so stay tuned for that glimpse into our tenant base.
In the News
Some recent multifamily news you may find interesting, with a focus on the major Carolina markets.
- Raleigh was named by Glassdoor as the best city for jobs in thew whole country for 2020. Glassdoor's methodology focused on "how easy it is to get a job, how affordable it is to live there and how satisfied employees are working there." READ MORE
- More comforting words about multifamily from an experienced capital manager: "If you look at multifamily, ultimately, it is a utility. People have to have a place to live, so by the very nature of the asset class, it fills an essential need rather than a an inessential need, like a shopping center. For that reason, it is the most recession resistant asset class. That is why investors continue to like multifamily. Even regulators in the bank sector treat multifamily differently than other CRE assets, and that is because it has an inherent risk aversion to a market cycle." READ MORE
- With the markets getting jittery, it's a good time to understand which markets fare the best in times of economic hardship. SmartAsset analyzed the major markets in the US across nine metrics within three overarching categories of: employment, housing and social assistance. While Texas looks strong as always, Raleigh and Cary NC also made the top 10 list. READ MORE
On the Socials
Here's a quick taste of some of our recent posts on social media.