184-unit multifamily value-add, seven-year hold
Interiors on 138 units over 30 months, with the property's average rent modeled from $1,585 to $1,810 across three years. Sixty percent leverage, two years interest-only, exit at a 5.50% cap on the forward NOI.
Bellhaven Crossing is not a real property. Every property in this library is fabricated. There is no address, no listing, no broker, no lender and no transaction behind any of it. The figures are model outputs for illustration, not a valuation, an offer, or investment, legal, tax, appraisal or brokerage advice.
The assumptions
Everything below is an input. Nothing here was inferred, smoothed, or filled in from a market average.
Property and business plan
- Units
- 184
- Rentable area
- 172,960 SF
- In-place rent
- $1,585 / unit / month
- Market rent
- $1,810 / unit / month
- Renovation budget
- 138 units at $11,500, over 30 months
- Rent ramp
- $1,585 to $1,810 property average, over 3 years
- Hold
- 7 years
- Asking price
- $38,640,000
Debt and exit
- Sizing
- 60% loan-to-value
- Rate
- 5.85% fixed
- Interest-only
- 2 years
- Amortization
- 30 years
- Exit cap
- 5.50% on forward NOI
The thesis, and what it costs
In-place rent is $1,585 against a $1,810 market. The gap is not free: the model funds $11,500 per unit of interior work on 138 units, plus $480,000 of amenity spend and $310,000 of roofs and parking, with an 8% contingency on top. That capital draws over months 3 to 32, not at close.
Read the revenue line the way the model builds it. The property's average rent moves from $1,585 to $1,810 on a straight-line three-year ramp, with both ends growing 3% a year, and all 184 units carry that average. The 138 interiors are the capital that buys the move, not a cap on how many units receive it. Year-4 gross potential rent of $4,367k is 184 units at $1,978 a month; hold 46 units at the unrenovated rent instead and you land about $136k lower.
Because the renovation is drawn rather than funded at close, it shows up in the cash flow rather than the basis at closing. Years one through three are cash-flow negative to the equity even though NOI is rising the whole time. That is the shape of a real value-add, and it is the reason equity multiple and IRR can disagree with the cash-on-cash a broker quotes.
Where the debt binds
Sixty percent of a $38.64M price is a $23.18M loan at 5.85%, interest-only for two years, then 30-year amortization. Year-one coverage is 1.38x and the going-in debt yield is 8.09%.
Note what happens in year three when amortization starts: debt service steps from $1.36M to $1.64M and coverage falls from 1.55x to 1.43x even though NOI rose. Interest-only periods do not remove debt service, they postpone it into a year the pro forma has to survive.
The exit does most of the work
A 5.50% exit cap on the year-eight forward NOI produces the reversion. Strip out the sale and the operating cash flow over seven years does not come close to the return. That is true of most value-add multifamily and it is why the downside case moves the exit cap first.
Operating pro forma
Figures in thousands of dollars. Negative amounts are in parentheses, the way an operating statement writes them.
| Line | Yr 1 | Yr 2 | Yr 3 | Yr 4 | Yr 5 | Yr 6 | Yr 7 |
|---|---|---|---|---|---|---|---|
| Gross potential rent | 3,500 | 3,775 | 4,064 | 4,367 | 4,498 | 4,633 | 4,772 |
| Other income and recoveries | 159 | 164 | 169 | 174 | 179 | 184 | 190 |
| Vacancy and credit loss | (268) | (268) | (266) | (261) | (269) | (277) | (285) |
| Effective gross income | 3,390 | 3,671 | 3,967 | 4,280 | 4,408 | 4,541 | 4,677 |
| Operating expenses | (1,515) | (1,568) | (1,623) | (1,680) | (1,739) | (1,800) | (1,863) |
| Net operating income | 1,875 | 2,103 | 2,344 | 2,600 | 2,670 | 2,741 | 2,814 |
| Capital items | (911) | (1,084) | (744) | (61) | (63) | (66) | (68) |
| Debt service | (1,356) | (1,356) | (1,641) | (1,641) | (1,641) | (1,641) | (1,641) |
| Levered cash flow (final year includes the sale) | (392) | (338) | (41) | 898 | 965 | 1,034 | 31,186 |
| DSCR | 1.38x | 1.55x | 1.43x | 1.58x | 1.63x | 1.67x | 1.71x |
Sources and uses, and the exit
Uses at close
- Purchase price
- $38,640,000
- Acquisition costs
- $695,520
- Financing fees
- $231,840
- Total uses
- $39,567,360
Sources at close
- Senior loan
- $23,184,000
- Equity at close
- $16,383,360
- Total sources
- $39,567,360
Exit
- Forward NOI at exit
- $2,889,339
- Sale price
- $52,533,436
- Selling costs
- ($919,335)
- Loan payoff
- ($21,533,340)
- Net sale proceeds
- $30,080,760
Downside and upside
The same three cases the product runs on every deal. The downside is not a haircut on the answer, it is a full re-underwrite with the assumptions moved.
| Case | Levered IRR | Equity multiple | Year-1 DSCR | What moved |
|---|---|---|---|---|
| Downside | -13.4% | 0.38x | 1.12x | Rent growth at 40% of base, expenses growing 20% faster, exit cap 75 bps wider, vacancy 3 points higher, rate 100 bps higher. |
| Base | 10.7% | 1.99x | 1.38x | The assumptions listed on this page, unchanged. |
| Upside | 19.7% | 3.36x | 1.47x | Rent growth at 140% of base, expenses growing 10% slower, exit cap 50 bps tighter, vacancy 1 point lower, rate 25 bps lower. |
Levered IRR against price and exit cap
Rows are the exit cap rate, columns the purchase price. The centre cell is the base case on this page, so the grid checks itself.
| Exit cap | $34,776,000 | $36,708,000 | $38,640,000 | $40,572,000 | $42,504,000 |
|---|---|---|---|---|---|
| 5.00% | 16.3% | 14.6% | 13.0% | 11.4% | 9.9% |
| 5.25% | 15.2% | 13.5% | 11.8% | 10.2% | 8.7% |
| 5.50% | 14.1% | 12.4% | 10.7% | 9.1% | 7.5% |
| 5.75% | 13.1% | 11.3% | 9.6% | 7.9% | 6.3% |
| 6.00% | 12.1% | 10.3% | 8.5% | 6.8% | 5.2% |
Against these hurdles
A recommendation is only worth anything next to the targets it was measured against. These are this example's own hurdles. In the product they are yours, and you edit them.
The hurdles used here
- Target levered IRR
- 14.00%
- Minimum year-1 DSCR
- 1.25x
- Minimum equity multiple
- 1.75x
Altyst does not supply a target return. It tests the model against the numbers you set.
Reprice
- Coverage clears at 1.38x against a 1.25x minimum.
- Equity multiple clears at 1.99x against 1.75x.
- Levered IRR of 10.71% is 329 basis points below the 14.00% target.
- A price of $34.90M, 9.67% below the asking price, clears all three.
What clears, and at what price
Each price below is solved by re-underwriting the whole model at that price until the constraint is met. The binding price is the lowest of the three, because a deal has to satisfy every hurdle, not the easiest one.
- Asking price
- $38,640,000
- Price for the target levered IRR
- $34,903,825
- Price for the minimum DSCR
- $42,739,250
- Price for the minimum equity multiple
- $41,078,053
- Value at the target going-in cap (5.50%)
- $34,094,826
- Binding price, the lowest of the three hurdle prices
- $34,903,825
- How the six pages in this library were classified, against the hurdles printed above and nothing else.
- Advance: all three hurdles clear at the asking price.
- IC Review: coverage and equity multiple clear, and the levered IRR misses by less than 100 basis points.
- Reprice: a hurdle fails at the asking price, and a lower price is published at which all three clear.
- Reject: no price in the search band clears every hurdle.
- In the product the same six words come from a wider test that also weighs average cash-on-cash, the downside case and a composite score. Three hurdles clearing is necessary for Advance, not sufficient, and Reject there is a downside test rather than a price search.
Checking this yourself
Every figure came from the same deterministic engine the product runs, in exact decimal arithmetic. The same inputs produce the same result every time, which is what makes a page like this worth publishing at all.
The inputs are on this page in full. Rebuild it in a spreadsheet and the lines should agree. Where a number surprises you, the line above it is usually the reason, and the calculation methodology states the convention used for every one.
Permanent link: https://altyst.ai/models/184-unit-multifamily-value-add
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