Investment Highlights

Location: Phoenix, AZ
No. of Buildings: 4
No. of Units: 63

Date Acquired: November 2, 2020
Purchase Price: $8.5M

• The property has very large units. Space is perhaps the highest demand amenity in the COVID era and one that cannot be replicated by competitors.

• Exterior renovations have already been completed leaving revenue-impactful interior renovations in about 40% of the units.

• Arcadia Lofts is located within 20 minutes of several of Arizona’s largest employers.

• There is a clear pathway to enhanced revenue through parking strategies (covered parking installation, assigned parking) and remaining interior renovations.

• The property has a Land Use Restrictive Agreement (LURA) with 13 years remaining on it that restricts about 50% of the units’ rents. This fact is reflected in our purchase price and carries a couple aspects we really appreciate: affordability and (especially during this time) a safe haven for occupancy.

• Possibility for premium at sale associated with the time decay of the LURA.

Closer Look

Located in a booming Phoenix market, the Arcadia Lofts was an acquisition not requiring much attention in terms of renovations. The somewhat unique facet about this is the potential upside contained within the LURA as we get closer to its expiration in 2033. Rent restrictions like those we inherited at Arcadia lofts should not be confused with “rent control”.

The main functional difference is that a LURA has a finite life and eventually expires, whereas rent control is a measure that affects an entire area for an indefinite period of time. Basically, at a property like Arcadia Lofts, you have an income stream that is suppressed today but that will jump higher at a known time in the future.

It is as if the property comes with an immovable and impenetrable safe equipped with a date release lock set to open in 2033. You get the money inside if you own the property when it opens. It seems fair to assume that an owner who intends to sell the property before that time will certainly market the safe as part of the deal and should be able to realize some discounted present value of what is inside it. This becomes true only when the expiration is within a reachable period of time (say, 10 years). The time remaining on the LURA, in our case, will put us inside what we think is the strike zone for being able to realize some of this future value at our eventual sale after our anticipated hold time. We have quantified this but have not included it within our expectations