Investment Thesis

Investment Strategy

Asset Management Strategy

Acquisition Process

Strong Multifamily Performance Driven by Increased Aggregate Demand

  • Declining Homeownership: Increasing home values and tighter underwriting standards have caused homeownership rates to fall from its peak of 69% in 2004 to a 20-year low at 63.7% in 2015.
  • Favorable Renting Trends: The United States has added 9 million new renters since 2005 due to increased rental demand from the Millennial generation which consists of 85 million citizens (largest generation in history).
  • Strong Demand for Class B and C: The demand for Class B and C multifamily assets across all major Texas markets has experienced an increase in demand as renting trends have increased rates, pushing renters toward more affordable alternatives. Further, as the wage gap and income disparity across the country augments, aggregate demand for Class B and C properties is also expected to increase.

Attractive Economic and Value Dynamics in Texas

  • Strong Job Growth: Texas continues to lead the nation in job growth. Since January 2009, Texas has seen a 15.7% increase in jobs resulting in over 1.5 million net jobs gained.
  • Low Unemployment Rate: As of April 2016, Texas’ unemployment rate was 4.4% (U.S. was 5.0%) and has consistently been at or below the national average for nearly a decade.
  • Cap Rates and Relative Value: In 2015, Cap Rates of all multifamily complexes across major metros in Texas averaged 6.6% which is ~150 bps higher than cap rates across the major metros in California and Northeast U.S.
  • Favorable Long-Term Factors: The affordable cost of living, attractive business climate, and diverse industrial focus (e.g. health care, energy, farming, transportation, and government) in Texas support a strong underlying economy poised for long-term growth.

Low Beta Value

  • Stable Multifamily Sector: The multifamily asset class has exhibited greater resiliency in maintaining asset values and experienced lower volatility in rent and occupancy levels relative to other property types. Specifically, performance of Class B and C apartments in Houston from 2008 to 2010 support this as evidenced by a 2.1% standard deviation of annual occupancy change from December 2004 to February 2016.
  • Consistent Class B and C Demand: Class B and C assets serve a fundamental need at an affordable level regardless of economic cycles; in tougher climates, Class A- and B+ renters may be forced to trade down to Class B/C properties. From 2008-2009, occupancy levels of Class B and C multifamily assets in Houston only declined by 1.0% and 2.6%, respectively.

Cypress Point’s investment strategy is to capitalize on favorable demographic trends and supply/demand dynamics in major metropolitan areas throughout Texas.

We target Class B and C multifamily assets with highly desirable locations in close proximity to large employment centers, major thoroughfares, public transportation access points, public schools, and retail centers.

Class B and C properties are often undervalued and/or overlooked by institutional buyers due to the significant investment in time and resources required to reposition the properties. The limited competition within this sector creates an opportunity for Cypress Point to acquire well located, quality assets at an attractive basis. Cypress Point has established extensive relationships with owners and brokers and focuses primarily on the acquisition of off-market opportunities. We target assets with absentee ownership, misalignment between owner and property manager, or unsophisticated owner/operators.

Cypress Point seeks to enhance the value of its investments through extensive interior and exterior renovations and improved property management. The assets are repositioned to directly compete with newer assets by offering affordable, high quality properties in desirable locations, resulting in significant growth in net operating income and overall capital appreciation.

 

Cypress Point has a fully owned and operated property management company which allows for full control and monitoring of on-site activities to ensure successful business plan execution.

Cypress Point’s unique institutional approach to asset management combined with our extensive operational knowledge and experience is one of our biggest competitive advantages. A strong emphasis is placed on hiring talented employees as we recognize that people are our best assets. By hiring and retaining quality individuals who are ultimately the “face of the property,” we are able to differentiate ourselves from competitors and achieve superior performance. A unique focus is also placed on technology solutions that provide enhanced efficiency as it relates to purchasing, spending limits, and expense approvals which help to reduce monthly expenses and increase net operating income. Further, operational and marketing strategies employed at the site-level are comparable with Class A properties as Cypress Point places a large emphasis on customer service, property marketing, and tailored leasing strategies.

1Evaluate Submarket/Location

  • Demographics: Analyze current and projected population growth, household income, and percentage of renters, along with employment and ethnic composition.
  • Location: Determine proximity to major employment centers, thoroughfares, retail centers, and local schools.
  • Crime statistics: Review historical property and submarket crime reports.

2Evaluate Opportunity

  • Analyze current and historical property level performance by reviewing Income Statements and Rent Rolls.
  • Review submarket performance and trends by analyzing current, historical, and projected rent growth, occupancy levels, and concessions via market surveys and third party data sources (CoStar and Axiometrics).
  • Identify direct competitors and compare market rents, occupancy levels, concessions, and interior/exterior renovations to determine “value-add” potential.
  • Perform competitor analysis by “secret shopping” the properties as a prospective resident to confirm rental rates, concessions, amenities, the level of interior upgrades, overall curb appeal, and the quality of operations/staff.
  • Engage third-party consultants to further refine non-controllable expense estimates.
    • Energy Consultant: Identify potential electricity/gas savings
    • Tax Consultant: Provide 5-year annual tax estimates

3Underwrite/Finalize Purchase Agreement

  • Finalize underwriting and determine offer price based on assumptions derived via in-depth market research.
  • Submit Letter of Intent to broker/seller outlining purchase price and key deal terms.
  • Prepare detailed Investment Memorandum and circulate to investors; Finalize Purchase Agreement.

4Due Diligence Period

  • Review Seller provided due diligence materials outlined in Purchase Agreement.
  • Solicit and Review Third-Party Reports: Environmental Assessment, Property Condition Assessment, Survey and Title Work.
  • Refine Renovation Budget: Inspect 100% of the unit interiors, and perform detailed exterior, mechanical, plumbing, and electrical inspection.
  • NOI and Lease Audit: Engage third-party consulting firm to review bank statements, general ledgers, and financials to confirm the accuracy of in-place revenue and expenses: Audit 100% of the lease files and obtain demographic data for residents.
  • Engage mortgage broker and/or lender to begin the process of securing financing.

5Closing

  • Prepare and distribute comprehensive due diligence summary to investors.
  • Finalize and circulate Company Agreement for Investors to execute.
  • Manage end-to-end close process by coordinating efforts of the lender, title company, attorneys, and seller.
  • Transition operations to Cypress Point team.