Sullivan Square Apartments in Bentonville, Arkansas has become a top performing property for Timberland Partners over the last 12 months. The growth in the Bentonville market was the anticipated market trend at the time of acquisition and has now surpassed our expectations. Through July 2022, the property’s Effective Gross Income rose by 17.73% over the prior year. At the same time, Expenses rose only 8.72%. This increase was largely a result of inflationary pressures, but our onsite team kept the growth in check. In fact, Expenses through July are under (favorable) budget by 0.92%. The strong operational performance has resulted in the Net Operating Income at the property, essentially the cash flow before debt service, rising 24.5% year to date.
The Timberland Partners investment team recognized the opportunity and continues to believe in the Northwest Arkansas market. Anchored by Walmart and the ongoing investment by the Walton family, the region continues to attract and retain new workers and employers.
While market rent growth, a product of unit demand outpacing supply, makes possible an increase in Effective Gross Income, it’s still up to the on-site management team to capture it. The best teams will capture that growth to the fullest extent possible. For one, that means utilizing state-of-the-art revenue management systems to continually optimize new and renewal rental rates based on comprehensive leasing data.
Technology, however, can only take it so far. Ultimately, the site staff needs to identify and reach potential renters before the competition, as well as constantly present the property in the best light possible in order to command the market rents indicated by the revenue software. Site teams and property management companies who do this poorly experience higher vacancy and/or a significantly greater loss-to-lease—the difference between a property’s average in-place rents and the current market rents.
A rising market coupled with a great management team can produce exceptional results. The Q2 operating cash flow distribution for this investment entity was an annualized 12.5% on the original $17.5 million investment base. The estimated internal rate of return through Q2 stands at 26.91% for the fund’s preferred unit holders (limited partner investors).