🏟️ They bought a ballpark for $1, then did this

👋 Hello, Best Ever Community!

In this week’s newsletter, a baseball stadium makes for the ultimate multifamily conversion, infinite returns get a shakedown, and one investor turns a vacant office into a six-figure cash cow.

This month, in the Best Ever Book Club, we’re reading Crucial Conversations: Tools for Talking When Stakes Are High. If you haven’t joined yet, go to bebookclub.com today and join us for our June meetup.

Let’s CRE!

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CRE HEADLINES

⏳Developers in Limbo: It’s taking an average of 500 days for new apartment projects to break ground after they’re approved, a 45% increase from 2019, as high interest rates and a strict lending environment force developers to stall projects.

🧨 Explosive Multifamily Growth: The apartment market with the most aggressive multifamily development is Huntsville, Ala., a title it has claimed since 2022. In Q1 2024, 5,900 units were delivered, expanding inventory by 15.9%.

💵 Nonprofits Profiting: With overall CRE pricing down 21% from its March 2022 peak, nonprofits are buying up property at a significant discount as revenues have grown from $1 trillion in 2020 to $3 trillion.

🏠 Staying Put: One in six (16.6%) U.S. renters stayed in their home for 10 years or more in 2022, up from 13.9% a decade earlier. Another 16.4% stayed for five to nine years (up from 14%), while the lion’s share stayed put for one to four years.

📈 Costly Protection: For states with the greatest extreme weather risk, current costs of $3,077 could almost double to hit $6,062 per building per month, a 10.2% CAGR, by 2030.

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FROM $1 BALLPARK TO MULTIFAMILY HOME RUN

Creativity is key when you’re trying to get deals to pencil in a low-transaction environment. Well, good luck finding a more creative deal than the one Core Redevelopment executed when it purchased an abandoned baseball stadium for $1 and converted it into a 138-unit apartment complex.

🏟️ A Stadium for $1?: Bush Stadium was home to the Indianapolis Indians, a Minor League Baseball club, from 1931 to 1996. By 2011, the stadium had been used for car storage and was abandoned and in danger of being torn down. The city transferred the property to a historic preservation nonprofit for disposition—a common practice for abandoned properties—which then, after the city approved the redevelopment plan, sold the stadium to Core Redevelopment for $1.

💸 The Finances: The Core Development team had a budget of $14 million for the Stadium Lofts conversion and came up just short of that, spending $13.8 million. It was funded by about $1.2 million in cash, a roughly $800,000 developer fee, $5.3 million in grants from the city, and a $6.5 million mortgage. The mortgage has since been paid off and replaced with long-term permanent financing.

🏗️ From Ballpark to Multifamily: Renovations began in August 2011 and took about two years to complete. After solving construction and engineering issues that needed to be addressed, they divided the property into 95 one-bedroom apartments, 26 two-bedroom apartments, and 17 lofts, all while maintaining the character of the original stadium. They kept the brick wall in the outfield, the billboards and scoreboards, and even the ticket booths out front. By the time the complex opened in July 2013, all 138 apartments had been leased.

🏘️ A Sister Community: Part of the deal with the city included building an additional 144 apartments outside of the stadium in four adjacent buildings, which were completed two years later at a cost of about $13 million. When it opened in July 2014, all units were leased. Across both Stadium Lofts and Flats, rents range from $1,025 to $1,581.

WHAT IT ALL MEANS

Office distress at an all-time high has spurred a wave of conversions to multifamily. Pair that with the need for more affordable housing, and concepts like Stadium Lofts—along with Holmdel, New Jersey’s Metroburb—are becoming more common. In a world where deals are difficult to come by, don’t be surprised if we see more unorthodox conversions come down the pike as investors find creative ways to get deals done.

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FROM BRIAN DAVIS

Due to the power of leverage, investors can sometimes pull their initial investment back out of a property, leaving them with nothing invested but still earning income, which some consider an "infinite return." However, the reality is more complex. Yes, investors can reinvest the principal to build a portfolio, but there are also dangers and downsides to consider.

Brian Davis of Spark Rental wrote about infinite returns on the Best Ever Blog, highlighting the risks in chasing them.

He writes:

“The BRRRR method requires a massive amount of time and labor,” notes Alexandra Alvarado of the American Apartment Owners Association. “Finding good deals takes work, as does hiring and managing contractors, pulling permits, hassling with inspectors, refinancing with a permanent lender, and a dozen other tasks.”

So yes, you may not have any money left invested in the deal after you refinance. But you potentially have hundreds of hours of your time invested, and your time has a very real value and cost. 

Or you could invest passively in syndications like I do. Just expect a much slower velocity of money, which reduces just how “infinite” your returns could be in the real world. 

Then there’s the risk of over-leverage. Borrow too much money, and your BRRRR rental might not cash flow — it might cost you money every month instead of earning it for you. That risk is generally less pronounced with refinanced syndications, but it doesn’t disappear entirely. 

I love the investment strategy behind infinite returns. But I still know that they’re not really infinite and that there’s no free lunch. 

👉 Read more from Brian about infinite returns here.

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VACANT OFFICE BECOMES SIX-FIGURE CASH COW

Carlos Rovira and team turned this completely vacant office building into a cash-flowing superstar in the middle of a pandemic. Here's how they did it. 👇

🏢 Property Details: The property, a 24,000-square-foot office building in Kansas City, was purchased in 2021. It was completely vacant and run down as remote work dominated the pandemic.

💸 Finances: Rovira’s team raised $700,000 in capital. The first $350,000 went to purchasing the property, the other half to cover CapEx. They also used a $200,000 line of credit for renovations.

💼 Business Plan: The team discovered that most tenant interest came from small businesses and entrepreneurs who didn’t need much space. So they created 33 units in the building, dividing larger spaces up into smaller 500 sqft units to meet demand.

👷Renovations: They did a complete cosmetic renovation of all units and common areas including flooring, paint, ceiling tiles, lighting, and fixtures. Some larger expenses included $100,000 for an HVAC compressor and $40,000 for new windows throughout the building.

🍾 Results: The property is now stabilized and cash flowing at $112,000 a year. Occupancy is sitting around 90% with plans to lease up the remaining units as soon as possible. Because the property is performing so well, the investors are planning to hold and cash flow long term. They’ll explore refinance and sale options once rates stabilize.

If you have a deal you'd like us to feature, share it with us!

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FREE DOCUMENT DOWNLOAD

How to Approach Broker Conversations

If you’re not using the downtime in the market to build relationships with brokers, you should be. You need a broker on your team. Like all relationships, this one must be reciprocal. Therefore, when approaching a conversation with a new broker, it’s important to realize that they are interviewing you as much as you are interviewing them.

In this document, Joe Fairless provides a list of questions you need to ask brokers, then outlines how you can win the broker over by focusing on coming across as a serious, credible investor who will close a deal.

👉 Download now!

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Wishing you a Best Ever day!

—Joe Fairless