August 8, 2017
One intriguing investment opportunity among multifamily buyers is the value-add sector. One such company, NAPA Ventures of Austin, makes its living on such investments. Connect Media recently caught up with Shravan Parsi, NAPA Ventures’ Co-CEO and Principal, to ask about the appeal of the Class B and C investments. Parsi is one of the panelists at Connect Texas Multifamily on Aug. 8.
Q. Tell me a little about what NAPA Ventures does.
A. We make investments in value-add multifamily real estate. We take a broken property, one that is under-performing or poorly managed, then we buy it, put a business plan in place to renovate interiors and upgrade it, then increase the rent. As an example, we just bought The Falls, in Dallas. The rent averages about $1 per square foot. Average area rents are $1.15 per square foot. That’s about where we’d want to be. When we buy properties, we hold them for about 3-5 years, then sell them at a profit.
We like value-add properties because we look for aggressive returns; we aim for properties that give us high teens, low 20s internal rate of return; 17%-22% IRR is ideal.
Q. How – and why – does Texas fit into your strategy?
A. We are investing in markets we’re familiar with. Most of the properties are within driving distance, and we visit those properties regularly. We’ve identified the primary markets of Austin, Dallas and Houston, and we’ve also identified tertiary markets, such as Corpus Christi. But, we’re not open just to Texas markets alone. Our biggest checkpoints are properties that are not managed well, that have a ton of deferred maintenance and operational inefficiencies. We like Class B and C properties in B locations.
And yes, we like the job growth in Texas. What happens is that we might see regentrification in a submarket, and we buy a property. Perhaps the previous owner couldn’t capture the market. Then we go after properties in the same submarket. Metrics lead us to that area, and inefficiencies call us to the properties. We look at the last five-to-10-year history of markets like Dallas-Fort Worth. There, we saw significant 6%-10% year-over-year rent increases. There’s a lot of good growth happening there.
Q. What is on tap for you for the rest of 2017 and into next year?
A. We’ll be exiting three or four of our properties this year. We’ve acquired 2,600 units – that’s 12 properties – in the past 11 months. That averages out to about one a month. We want to continue that. And, we’re looking at other opportunistic markets, such as Washington state. Because of our existing relationships, 60%-70% of our portfolio came from off-market transactions, directly from the seller. We’re open to brokered opportunities, but we prefer finding the properties before they hit the market.
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