Milestone is pleased to announce the closing of Axis Delray Beach, a 488-unit garden-style apartment community located in the high-growth Delray Beach submarket in South Florida’s Palm Beach County. As part of this transaction, the Fund and the Fund’s predecessor vintage in our flagship fund series, Milestone Real Estate Investors V, LP (“Fund V”), each acquired 50% of the ownership interests in the Property as equal, pari passu partners in a joint venture structure. This investment marks the final investment of Fund V and the first investment in the Fund.
Milestone believes this is a compelling acquisition for the Fund for the following reasons:
Discount through Off-Market Execution: Due to an existing relationship with the Seller, who is facing liquidity pressures in their U.S. real estate portfolio, the Property was purchased off-market. The Fund’s purchase price represents a 30% discount to the price for which the Property was under contract to sell just two years ago.
Additionally, the in-place adjusted cap rate of 6.1% is 50-100 basis points above comparable transactions in South Florida over the last 6 months. The strong in-place cap rate allows for day one positive leverage and a business plan that is focused on improving operational efficiencies and strategic capital deployment to further enhance the Property’s curb appeal without being dependent on outsized rent growth.
Low Density, Differentiated Product Offering: The Property’s unit mix comprises 90% 2- and 3-bedroom units and includes 104 townhome units, which is unique to the submarket and its rental competitors. The Property’s low density of 8.5 units per acre and average unit size of 1,191 square feet would be economically unfeasible to develop today and yields tenant loyalty from those seeking quality housing at an obtainable price point in the immediate area. The current replacement cost for garden-style multifamily properties in Palm Beach County is $350-400k per unit. The Fund’s acquisition price represents what Milestone believes is an approximate 20% to 30% discount to replacement cost.
High Growth Location Proximate to Major Employers and Demand Drivers: The Property is in a highly visible location at the intersection of Congress Avenue and Linton Boulevard, which average over a 30k and 40k daily vehicle traffic count, respectively. The location is less than one minute from the I-95 interchange giving residents direct access to major employment nodes in West Palm Beach (18.5M SF of office space; 20 minutes away; 88k daytime employees) and Boca Raton (15.2M SF of office space; 5 minutes away; 122k daytime employees). Greater Delray Beach houses approximately 7M SF of office space and 73k daytime employees.
Additionally, there are five major medical centers within 20 minutes of the Property, including Delray Beach Medical (5-7 minutes), which employs approximately 1.6k people in the immediate area. Major national retailers within minutes of the Property include notable names such as Whole Foods, Target, HomeGoods, Costco, Publix and Trader Joes. Average household incomes at the property are $102k and represent an
attractive 3.5x income-to-rent ratio on projected year one asking rents.
Significant Capital Injection by Previous Ownership: The previous ownership group deployed over $15M of capex into the Property including the construction of a standalone fitness center, pool enhancements, a full clubhouse renovation and expansion, full roof replacement, exterior painting and façade renovation, and the
renovation of approximately 60% of units at a cost of $30k per unit. The Fund’s business plan includes an additional $8M of strategic property enhancements including further enhancing curb appeal, continuation of the proven unit-interior renovation program and better positioning of the asset within its competitive set.
Despite recent capital market headwinds and volatility, Milestone is excited about the acquisition of Axis Delray, which aligns with its objectives to acquire strong value-add opportunities in markets with long-term growth potential. Our efforts continue to be focused on finding institutional quality assets and locations with attractive risk adjusted returns. We look forward to providing you with further details on Axis Delray in future quarterly reports.
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