Our recipe for helping you reach your real estate investment goals
Birchstone Investments, LLC’s business model is to acquire optimally located Class B and C multifamily properties in the United States in emerging markets that show prospects of both job and population growth. Currently, we are targeting properties primarily in the Southeast and Mid-Atlantic states – areas that are enjoying renewed growth, with lucrative investment opportunities in certain areas. In addition, we periodically consider properties in other areas of the United States that meet our investment criteria.
Target Market Criteria
BSI is focused on investing in workforce housing multifamily assets that can be transformed through a value-add strategy. Opportunities exist in this market segment due to assets being mismanaged and frequently undercapitalized. This results in lower occupancy levels and tenant quality – problems we believe we can fix.
We seek properties with a value-add component, such as deferred maintenance or poor management, resulting in under-market rents and high vacancy rates. Typical value-add propositions include unit renovations such as upgrading appliances; updating kitchens, baths and flooring; and enhancing the beauty of the property with such things as professional landscaping, exterior paint and parking lot resurfacing. Additional improvements may include implementing a tenant bill-back system for certain utilities to encourage tenants to be environmentally conscious. BSI partners with professional property management firms to ensure better maintenance, rent collection, and tenant relationships. When necessary, we may completely rebrand the asset.
Our goal is to maximize the net operating income (NOI) of each investment by increasing revenue and streamlining expenses for existing properties. The ultimate goal of each of these value-add programs is to stabilize occupancy at 95% or better and achieve increases in rents to resemble current market rates. This process of repositioning properties through operational efficiencies, moderate to extensive renovations and complete rebranding allows BSI to realize improvements in overall cash flow that can be shared with our Investors and also increases the value of the asset.
Choosing the “right” properties to acquire is critical in BSI’s acquisition strategies. That’s why we are diligent in our identification of potential acquisition opportunities in emerging markets.
BSI conducts market research using a number of criteria, including:
- Job growth (local and regional)
- Population growth
- Path of progress
- Local economic trends
- Chamber of Commerce findings
Many indicators are the result – in large part – of job growth, population growth, and higher demand for existing apartment construction.
BSI targets its investments primarily in properties located in emerging markets in the Southeastern and Mid-Atlantic states. However, we will remain attentive to opportunities in other U.S. regions.
Emerging markets tend to exhibit high job growth and household formation after experiencing a period of slow growth, resulting in rising occupancy levels and rising rents. Numerous other factors contribute to determining the market, including (but not limited to) population growth, valuation trends, occupancy trends, demographic composition, economic conditions and expansions, and local demand and supply trends.
Many areas within the Southeastern and Mid-Atlantic U.S. present characteristics of both emerging and mature, healthy markets. Many major cities in the region are home to thriving educational, medical and technological centers, which are attractive to expanding businesses as well as millennial job-seekers. And certain areas offer a relatively low cost of living.
Pockets of opportunity exist even in major markets that have seen massive development. With our extensive analysis of regional, local and property conditions, we can determine the property-class tiers where potential exists, as well as favorable markets.
Our 7-Step Process
- Assessment – Before investing in a new market, Birchstone Investments, LLC conducts extensive due diligence on the marketplace to identify specific pockets of opportunity. Once we identify potentially viable properties, we measure them against our strict acquisition criteria. We prescreen the property to ensure it meets certain basic requirements. Once assured of this we assess opportunities presented by the property that would make it appealing to renters. This is followed by a “drive-by” which lets us see firsthand the quality and potential of each property; it also supports our initial thoughts of the viability of a given potential opportunity.
- Analysis – The analysis stage of the lifecycle is where we begin our evaluation of determining the best use and highest potential of each property. We do this through reviewing detailed market research and shopping rental comps in the area of the subject property. At this point, we begin the underwriting process and the development of our underwriting analysis. All of this is geared toward helping us assess the value-added potential of a given property.
- Due Diligence & Negotiation – Before we negotiate the contract, we start our due diligence process. Our goal is to have a good handle on all material risks that could significantly impact the returns over our ownership timeframe. Once under contract, we take a deeper dive, digging up all pertinent information. To get the best results, we conduct a thorough physical inspection of the property, walk each unit and audit all leases. We scrutinize historical financial statements and interview the in-place property staff. We have a thorough checklist, which our dedicated team reviews again and again to ensure we have all our checks and balances in place. Based on our findings, we work closely with our lender partners to obtain term sheets to help structure the deal to maximize reward versus risk. Our final step is to ensure all significant risks are adequately addressed and our negotiated terms have been agreed upon.
- Acquisition – Once a property is under contract, we develop a detailed business plan for the property, deliver on lender requirements, create and execute all legal documents, and interview property management companies. We hire experienced securities attorneys to organize the appropriate corporate structures and to draft the legal documents necessary for compliance with Securities and Exchange Commission regulations. This ensures investors are informed of the risks and potential rewards of the investment before making their investment decision. We will develop and refine our value-add scope for the property, which includes obtaining bids from our vendor partners and further verifying and updating our lease rate assumptions. Throughout this process we will have regular communications with our investor partners to ensure everyone is on the same page.
- Value-add Rehab and Reposition – As a value-added investor, our objective is to minimize overhead and target capital improvements to generate the highest return. We do this by enhancing curb appeal, executing interior upgrades, or when necessary, correcting deferred maintenance and structural faults. Careful planning ensures our investments generate cash flow throughout each stage of the investment lifecycle while also accruing capital gains.
- Asset Management – Our Property Management team focuses on continuously optimizing the performance of the property. Our goal is to maximize capital gains and cash flow through strategic repositioning. We design property improvements through comprehensive strategies which improves the overall living space and community appeal, thus enhancing the resident experience.
- Disposition – Our strategy is to sell when favorable market conditions align with our desired tax-advantaged holding period. We believe a successful real estate investment should provide cash flow throughout the life of the investment in addition to capital preservation and appreciation at the time of sale. We prefer to align ourselves with medium-term investors who are comfortable with holding time frames of five to seven years and are interested in tax-advantaged capital gains and growing passive income. Our goal is to maximize investor returns by employing a favorable capitalization structure while focusing on optimal property performance.