The Landing at Pinewood Park Case Study

The Landing at Pinewood Park is a 228-unit, class C multifamily property located in Lubbock, Texas. Lone Star Capital acquired the asset on April 15, 2021 for $10,450,000 ($45,833/unit) through an off-market process from a retired, local multifamily owner in Lubbock.

The seller’s locally-based family business had neglected the property, running it for low cost, rather than high returns. This resulted in deferred capital needs and weak property performance. Fixing these issues presented a compelling value-add opportunity.

Low basis and upside through lease up (current occupancy was about 85%) and improved management were both value drivers, with neither strategy being capital intensive: Lone Star planned an initial capital expenditures budget of $921,170 (a modest $4,040 per unit).

The acquisition was financed by assuming seller’s existing Fannie Mae loan (originated in May 2016) which allowed an acquisition at below 90% occupancy with long-term, fixed-rate debt, instead of a floating rate bridge loan typical for turnaround plans. Modest leverage of around 65% LTV further reduced risk.

Lubbock is a dynamic secondary market of Texas with a similar growth profile to other major Texas markets. Lubbock’s population grew over 10.2%1 from 2010 to 2018 (11th largest city in the state and 2nd largest west of I–35). Texas Tech University and medical sector job expansion along with the low cost of living drive continued growth in the area. Despite the COVID-19 pandemic in 2020, rents in Lubbock grew 2.5% while the broader US multifamily market endured slight rent decreases. Job growth in Lubbock was projected to outpace the national average by 6.3%.

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Property Overview

The Landing at Pinewood Park (“The Landing”) is a 228-unit multifamily property located in the Northwest of Lubbock, Texas. Built in 1971, The Landing is situated in a solid, middle-income neighborhood at a high-traffic intersection of Lubbock’s TX-289 Loop Road, with national retail names including McDonalds, Papa Johns, and Walgreens.

The unit mix comprises of 48 one-bedroom units, 150 two-bedroom units, and 30 three-bedroom units with an average unit size of 887 square feet. At takeover, the property sat at 85% occupied while nearby comps averaged 91%+, establishing the potential for operational upside.

Common area amenities include a swimming pool, fitness center, a laundry facility, and a basketball court.

Business Plan / Value-Add

Lone Star’s business plan included:

• Improved curb appeal through modernized rebranding

• Re-tenanting

• New countertops, windows and appliances to bring rents up to market rates as well as maximize occupancy

• Furnished model unit to drive leasing

• On the exterior, Lone Star added an outdoor kitchen, lighting improvements and business center

• Lastly, the rundown basketball court was repurposed to become a playground

Both management improvement efforts and capital expenditures were extremely effective in turning around the property’s performance in less than 12 months.

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Asset Management / Performance

The Landing’s operational performance was in line with underwriting projections. The on-site team succeeded in pushing rents to proforma supported by the capex plan and continued focus on leasing. Lone Star’s management team handled the coronavirus pandemic extremely well and the resident base worked with staff on payment plans to maintain occupancy and mitigate collection loss.

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As of this writing, The Landing has been a tremendous success for Lone Star and its investors as the partnership executed a cash-out refinance on March 27, 2023 at an appraised value of $16,600,000 ($72,807 per unit), returning 43% of investor’s original capital and catching up the preferred return (for a total of 50% return of original investment). The new Fannie Mae loan has a 10-year term and a rate of 5.34%, including 5 years of interest-only payments.

Lone Star Capital anticipates continuing monthly distributions at 7% moving forward. Lone Star’s acquisition underwriting assumed a sale in five years (April 2026) for $16,042,121 ($70,360 per unit) using a conservative 6.25% terminal capitalization rate.

Due to the inopportune market environment to sell, a refinance presented the strongest path to ensuring capital preservation and optimizing returns. If the partnership were to have sold at the appraised value instead, the gross IRR would be 36.0% over a 22.4 month hold period (1.79x equity multiple).

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