In November 2012, Timberland Partners Apartment Fund III, LLC (Fund III) purchased Westbury Apartments in Howell, MI for $13,030,000. Fund III invested $3,750,000 and financed the balance with a fixed-rate Freddie Mac loan. Built in 2003, the property was considered a “Class A” asset at the time of acquisition. Westbury is comprised of 131 units spread across 16 two-and-a-half story buildings and, considering its vintage and location, is very well-amenitized.
Fund III purchased Westbury from the lender, which had acquired the property in 2009 through a foreclosure sale from the property’s original developer. At the time of the foreclosure, the amount due on the mortgage was $19,500,000. Our purchase price was a 33% discount to the outstanding loan balance at the time of foreclosure and represented a significant discount to the replacement cost of the property.
On the heels of The Great Recession, Detroit and the surrounding markets were still strongly out of favor with many regional buyers and most institutional investors. Timberland Partners recognized that Westbury was an exceptional product in the market, and its particular submarket had proven resilient during the recession and was trending in a positive direction. Fund III acquired the property as a strong basis-play and prepared for a long-term hold.
On September 1, 2022, Fund III closed on a refinance of Westbury Apartments. The new $19,364,000 Freddie Mac loan allowed us to conservatively re-lever the property to 62% loan-to-value and lock in a fixed interest rate of 4.64% before further increases in the federal funds rate. The loan matures in ten years and is interest-only for the entire term. The current appraisal shows a value of $31,100,000.
Proceeds of the new loan were first used to repay the existing loan and the related transaction costs leaving $7,262,293 in net proceeds. In addition, $340,112 was released from lender-held escrows into the operating account. After withholding $1.9 million for future improvements to the property, the $5,625,000 balance was distributed to our partners—a 32.9% return on the entire Fund’s original investment base. To date, the Fund has produced a net 26.02% internal rate of return (IRR) for our investment partners and, while still fully invested in multifamily real estate, has returned 2.25x of the original investment base in cash distributions.
