Lessons Learned – Hawthorne at the District

Mar 23, 2020 | Wildhorn Insights

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We closed on our latest value-add multifamily project March 12th.  This marks our first acquisition of 2020, and a project we’d been working on prior to Christmas. As we always do, after closing on a transaction we sit down to reflect on what we learned through that process.  

First, the backstory of this project and asset.  It’s a 284-unit property located in our home market of Austin, Texas, and it’s located just off East Riverside Drive–probably the hottest area of town right now.  We’ve looked at multiple deals in this submarket over the last few years and just haven’t found anything that spoke to us the way this one does. It’s been well taken care of but has a clear value-add story. We were also able to work this deal off-market, before it got into a competitive bidding situation with anyone else. 

Obviously we’re thrilled with this acquisition and what it does for our investors and portfolio. This marks our third asset in Austin and takes our portfolio over 1800 units.  But, what did we learn? 

Timing is critical.

We closed this deal on March 12th–the week before the Coronavirus pandemic really shut down the market and the country.  While we’ll have much more to say on this topic in future articles, we recognize the timing of this deal benefited greatly from closing when it did.  Had we been closing a week or two later, we assume the process would not have been as smooth. What we know today is many bridge lenders have pushed pause on putting out more money.  Interest rates are declining, but spreads are widening and are incredibly volatile. Inspections and Due Diligence is difficult given the Social Distancing practices. In our case, the loan was locked in, we had received investor funds, etc.  We did have the foresight to negotiate aggressively on the interest rate floor–allowing us to lock a much lower rate than advertised. But our cake was fully baked. We feel fortunate and full of gratitude that this deal wasn’t impacted by the pandemic and are now able to focus on operations and taking care of our staff and residents. We don’t take that bit of good luck lightly.   

Relationships remain #1.

In every single deal we’ve done, we’ve highlighted the importance of relationships in getting that deal closed.  This was no different.  You just don’t get a look at an off-market deal in a hot area of Austin if you don’t have a great relationship with the brokerage community. We got a call two weeks before Christmas about a potential off-market deal, and acted quickly.  We secret shopped it, ran all the comps and underwrote it in less than 2 days. Our lender worked hard for us running through the full menu of debt options, working overtime at the busiest part of the year to help us fully understand the capital stack. We were able to reach out to a handful of our loyal investors to pick their brain and gauge interest on a deal like this.  Because we had great relationships, we got the call when no one else did, and we were able to get an LOI signed before Christmas before pausing and letting everyone enjoy their holiday. We continue to recognize the importance of having great relationships in this business. As we talked about at a recent conference presentation we spoke at–we’re in the relationship business.  

Look for ways to be opportunistic. 

We’ve recently written about our need and desire to be opportunistic in Austin.  This deal fits that mantra to a T. First and foremost, it’s a value-add apartment.  Our business plan is to renovate units, tweak existing amenities and offer a very competitive price and product in the hottest submarket of Austin.  It’s all centered around us executing what we’re known for–value-add apartments. However, this location is surrounded by development, both ongoing and planned.  The biggest developers in our town are buying land at record-breaking prices with major plans to change the landscape in this pocket. Our asset is located in a zoning overlay that allows for increased density. 

While we haven’t underwritten this to be anything other than a value-add deal, we have explored what those zoning regulations mean.  And we’ve talked with developer friends to get smart on the cost of dirt, development and what might make sense in the future. In a couple years time, when we start to look at exit options that maximize investor returns, we’ll absolutely be opportunistic and exhaust all options. We call that being opportunistic. 

Building the right team.

Just about the time we got the phone call from the broker about this off market deal, we also had a lunch scheduled with a long-time friend and industry contact.  He had recently transitioned jobs and we brainstormed a bit about how we might be able to help him, or partner together in the future. The more we kept talking, and the further along our deal progressed, the more it made sense to partner with him on this deal. 

He’s another life-long and Native Austinite, and has spent his whole career in Commercial Real Estate in Austin.  He’s also much more well versed in development and zoning that we are and has done a lot of work in this submarket.   We mutually agreed that having him a part of this project, and a member of our GP, was additive to everyone. As we explore ways to be opportunistic and figure out potential development avenues, we’ve created a strong team for this deal–and potentially beyond. 

We always enjoy writing these celebratory and reflective articles after closing deals.  It’s our continued hope that you can take something away from them for your business, or see something you want to discuss more.  If that’s the case, feel free to reach out anytime.

Andrew Campbell

Written by Andrew Campbell

Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.

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