Multifamily investment firm Lloyd Jones has acquired Arium Grandewood, a 306-unit apartment community in South Orlando. The sales price and seller was not disclosed.
Built in 2005, the garden-style community consists of a mix of one-, two- and three-bedroom floor plans. Amenities include a resort-style pool, BBQ pavilion, fitness center, volleyball court and business center. Lloyd Jones’ plans for the property include $2.7 million in capital improvements that include a two-level interior renovation package program comprising 95 percent of the units.
“The acquisition of Arium Grandewood is part of our strategic investment plan focused on established Orlando properties that are centrally located and well-positioned for value-add opportunities,” said Ashley Socarras, EVP of investments at Lloyd Jones.
Lloyd Jones, a Miami-based real estate investment, development, and management firm, is actively looking to invest in Central Florida multifamily properties.
The company blasted out a press release last week, publicizing its most recent acquisition in the market– a 306-unit apartment community directly east of Orlando’s tourism corridor– along with its intent to focus on picking up more Orlando properties that are “well-positioned for value-add opportunities,” Ashley Socarras, executive vice president of investments, said in the release.
Ashley Socarras, executive vice president of acquisitions for Lloyd Jones LLC, was recently named a “Rising Star of Real Estate” by Business Insider. After reviewing hundreds of nominations across the U.S., the publication selected 30 commercial and residential real estate industry leaders aged 35 and under for the prestigious annual list.
“These 30 young professionals stood out as the vanguard of the next generation in real estate, from prodigies who’ve risen through the ranks and innovated at established firms to startup founders looking to disrupt pockets of the sector with deeply traditional roots,” the article said.
Ashley joined Lloyd Jones as an analyst in 2016 and has been promoted four times, most recently, to an executive vice president role. Throughout her tenure, she has played a critical role in the acquisition/disposition of more than 4,000 multifamily units across the southeast, valued at over $750 million.
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Senior Housing News
By Chuck Sudo |
Trailblazers in the active adult space have their sights set on capturing multiple consumer segments for the product.
One possible scenario involves building a continuum within the active adult sector where residents can transition from single family cottages to apartments, en route to an eventual transition to full-service independent living. This continuum would be all rental, with a la carte services added by residents as needed. Real estate firm Lloyd Jones is already working on this model, and expects it to be mutually beneficial for owners and residents over time.
Other developers — such as Newport Beach, California-based Avenida Partners — are targeting markets with active adult rentals at different price points, in order to capture the growing demographic of baby boomers expected to flood the space over the next 10 to 25 years.
Active adult represents the biggest real estate opportunity that Lloyd Jones Founder, Chairman and CEO Chris Finlay has seen in his 40-year career, but it is also a challenging sector to enter.
Notably, operators find themselves having to convince seniors to make the move from a single family home to a smaller space, as well as educating prospects on the benefits of a move. This requires a lot of footwork by sales and marketing teams, months and even a year before a building opens, Avenida Partners Managing Partner Robert May said Wednesday during Senior Housing News’ Virtual Active Adult Summit.
It also requires correctly identifying the right markets to build active adult, deducing demographic trends for growth, and predicting what residents will need in order to comfortably age in place for the next five to ten years.
“You need to hit the bullseye on all those,” May said.
Building an active adult continuum
Lloyd Jones is a prominent name in multifamily development and has long been involved in the age-restricted sector as well, Finlay said. More recently, the firm launched its Aviva-branded active adult model.
The Aviva portfolio is being build with three distinct models. Aviva Cottages are a for-lease cottage product which Finlay envisions as an entry point for the first wave of boomers transitioning to active adult. Aviva 55 is three- to four-story buildings, and the firm is building a more traditional independent living product, with the first building set to open in Port St. Lucie, Florida later this year. It will include two wings and a central clubhouse, enabling Lloyd Jones to lease up one half of the building while the other half is under construction.
An obstacle to building more cottages is a lack of available land to build a horizontal development at a scale necessary to generate adequate returns for investors. But Finlay believes that the model would be especially popular with seniors in suburban markets making their initial transitions from single-family homes. Conversely, the Aviva 55 concept is better suited to urban environments where lot sizes are smaller, and will appeal to consumers looking for the lifestyle afforded by these locations.
Finlay believes that an all-rental model holds untapped potential for developers and residents. As seniors age in place, they can use home health care services and technology to maintain an elevated quality of life for an extended period of time. The rental model will allow residents to manage their retirement nest eggs better.
“We feel that there will be amazing demand for people to sell their homes and retain equity to help with retirement,” Finlay said.
Active adult communities tend to be slow to lease-up, but once occupancy levels reach stabilization, they tend to remain constant. For new buildings, Lloyd Jones pencils lease-up pro formas at around six new move-ins per month, but the average length of stay among residents is over 10 years, and the oldest resident in an Aviva community is 103, Finlay said.
He noted that occupancy across the Aviva portfolio is at around 99%, while operating margins are comparable to independent living’s average of 35%. Resident satisfaction, meanwhile, is high.
A localized sales approach
Newport Beach, California-based Avenida has two active adult lines: an affordable model with rents averaging $1,850 per month; and a market-rate line with average rents between $2,100 and $2,200 per month.
Avenida’s move to create an active adult product that can flex between different price points depending on a building’s location and other factors is similar to what senior living providers are doing in other parts of the continuum. For instance, Eclipse Senior Living, Atria Senior Living and Merrill Gardens all have ambitions to create different operating models to serve various parts of the market.
Nearly all of Avenida’s buildings range between 140 and 160 units, which puts pressure on the developer to be correct on locations, programming, activities and demographic trends, because active adult is not a needs-based move, compared to the rest of the senior housing care continuum.
Avenida’s target markets are very localized, with around 50% of its residents coming from within 10 miles of its communities, May said during Wednesday’s virtual summit. About two-thirds of its residents sell their homes in order to move into a building.
Because active adult is a newer segment of senior living, developers in the space hit the ground early to educate the target demographic on the benefits of the product. Avenida keeps track of housing sales in its markets to identify potential customers and generate leads. Additionally, its sales teams spend up to 12 months before a community welcomes new residents educating prospects on its offerings and services.
The firm also reaches out to senior housing providers in its markets. This alleviates fears that they are going after the same customer, as well as establishes mutual referral networks to send referrals who would, for example, be better suited for independent living to a competitor, and vice versa.
May sees the biggest obstacle to a move as the family that does not want to sell its home. Once Avenida is able to overcome that objection, however, it has move-in coordinators on staff to assist families with closing escrows and downsizing their belongings to prepare for the transition.
“We think that people want to move, but they don’t need to move. It eventually morphs into a need as they fight isolation and depression, and they discover a sense of community in our buildings,” he said. Link: https://seniorhousingnews.com/2020/07/15/active-adult-trailblazers-refine-their-models-to-seize-massive-market-opportunity/
Covid-19 has affected all our daily lives. What at first seemed like a virus abroad has quickly crossed borders and disrupted how we live and work. That said, for senior housing operators, this disruption and how we respond to it is a matter of life and death.
Critical measures must be taken in order to mitigate the risk of Covid-19. With this in mind, Lloyd Jones is taking a multifaceted approach to mitigation.
First and foremost, we are staying up to date and complying with federal and state guidelines. We immediately restricted all visitors, including physical therapists and outside nurses. However, we are helping our residents communicate with family via email and video/phone calls to ensure that they are staying connected. We are reducing staff, and those who are working are regularly tested for the virus. Also, they must wear personal protective equipment at all times. Our offices and amenities are closed, and only critical maintenance requests are approved.
In parallel, our housekeeping efforts are at an all-time high. All high touch areas are cleaned multiple times daily. In addition to the common areas, apartments are being cleaned more frequently. In the dining room, tables and chairs are wiped down after every seating. Lunch seating is staggered, and all residents wear masks outside of their apartments. For the time being, dinner is served inside of the individual apartments.
Physical and mental health are of the utmost importance during times of stress. All group activities have been canceled, but our teams are conducting multiple exercise/meditation groups per day with a limited number of residents. Furthermore, the teams are offering more one-on-one time with the residents.
For us, these steps are not guidelines, but rather strict protocol to ensure the safety and health of our residents and staff. We look forward to returning to some form of normalcy but will take with us the lessons learned during this time to ensure continued safety and health throughout the future.
MIAMI, FL – Lloyd Jones, a multifamily investment firm based in Miami, has purchased the luxury Pembroke Pines property, Ventura Pointe.
The 206-unit apartment community, built in 2018, has a state-of-the-art gym, clubhouse, pool, pet park, and outdoor recreation area. Furthermore, it is adjacent to the 301-bed Memorial Hospital Pembroke and has excellent access to nearby retail and entertainment.
Christopher Finlay, CEO/Chairman of Lloyd Jones, says he is thrilled to expand the firm’s footprint in South Florida, a region that has seen explosive job and population growth in the past few years.
“I am excited to grow our South Florida portfolio. We have seen tremendous growth in the area, and we are happy to be able to offer a new, Class A property to support the growing population,” says Finlay.
Lloyd Jones is a real estate investment and development firm with 40 years in the industry under the continuous direction of Chairman/CEO, Christopher Finlay. Based in Miami, the firm has divisions in multifamily investment, development, management, and senior living. Its investment partners include institutions, private investors, and its own principals.
In a competitive, fast-changing environment, meeting client expectations calls for unprecedented sophistication about business strategy, finance and other areas. Experts name five key areas to focus on.
by Robyn Friedman
Waters Edge at Harbison, Columbia, S.C. In the midst of massive local layoffs that caused multifamily vacancy in the area to skyrocket, the community held the line through stepped-up resident engagement and new programs. Image courtesy of Lloyd Jones LLC
The days are long past when managing a multifamily community was primarily a matter of collecting rent, paying bills and maintaining the physical asset. Adding value is now a standard part of the job, because of the much-discussed evolution of the profession into a strategic role. In broad terms, the mission is to think like an owner, rather than a caretaker. But the question remains: What do owners and asset managers really want? READ THE DIGEST
Answering the question is a high-stakes affair. “You’re taking somebody and giving them the responsibility of managing potentially a $50 million asset,” said Christopher Finlay, chairman & CEO of Lloyd Jones Capital, a diversified investor and operator. “If you don’t have the right manager, you absolutely will not achieve the business plan. And that could have drastic financial results.”
CHANGE DRIVERS
Strategies for meeting the needs of ownership stem from a handful of trends that are reshaping the property manager’s role. Fee compression. Management fees vary widely depending on the size of the property, the size of the owner, the market and the size of the cashflow stream, so it’s hard to pin down ranges for property management fees.
But things are getting tighter. Twenty years ago, the fee for managing a typical 200-unit community was close to 5 percent of the total revenue generated at the property, recalled Walt Lamperski, president of Atlanta-based Stonemark Management. A decade ago, the fee was 4 percent; today, it’s 3 percent. “It’s the new competition,” he said. “Everybody is involved in third-party management.”
From left, Dustin Read, Virginia Tech; Kim Collins, CBRE; and Bryan Furze, Federal Realty Trust, at the 2018 IREM Global Summit in Hollywood, Fla.
Labor squeeze. Good multifamily managers are hard to find, a fact exemplified by rising compensation. Ten years ago, the annual salary for managing a 400-unit asset in Atlanta was $40,000; today, Lamperski pays between $65,000 and $75,000 for someone to manage a comparable community. So competitive is the market for skilled managers that National Multifamily Housing Council members give their business cards to potential managers when they receive good service in other settings, reported Rick Haughey, NMHC’s vice president for industry technology initiatives. Savvy clients. Institutionalization of ownership spearheaded by REITs and other investors have raised the bar for information gathering and financial reporting, noted Haughey. Technology. Robust development has raised competition, held down yields and forced owners to sharpen their pencils. As some traditional property management functions are automated, a growing number of properties are eliminating the on-site manager’s position. “A lot of that has to do with competition in the marketplace,” said Dustin Read, an associate professor of property management at Virginia Tech. “The market has been so frothy for multifamily that yields have been driven down.”
MEETING EXPECTATIONS
So how do property managers meet the rising expectations of the asset managers they serve? For service providers seeking to answer that question, step one is to recognize the headaches shared by both groups. “A lot of property managers think that asset managers sit on high and don’t feel the same pressure to do more with less and wring every dollar out of a property,” Read said. “The more property managers and asset managers understand what each other does, the more opportunities for collaboration.” Here are five essential qualities that asset managers expect today. Create value. Managers should look beyond the physical confines of an asset in order to understand its place in the larger market. Yet Read’s research suggests that most asset managers think their on-site counterparts don’t fully understand the owner’s objectives. “They’ll say that their property managers are worried about the blocking and tackling on the ground and don’t have any idea what our investors’ long-term goals are,” he noted. A good start: reading the owner’s prospectus, which will help the property manager recommend steps that will help meet or exceed the client’s goals.
At Stonemark Management, Lamperski adds value for his clients by training his team in effective negotiation with vendors. “We’ve been able to create lots of savings without sacrificing the work,” he said. Stonemark renegotiated contracts or switched contractors at Barrington Hills, 376-unit Class B community in Peachtree Crossings, Ga., an Atlanta suburb. The effort saved $20,000 per month on maintenance-related expenses and advertising without cutting services.
To add value most effectively, property managers should be ready to think boldly and willing to take the initiative. So says Bryan Furze, senior vice president of asset management at Federal Realty Investment Trust. Speaking at the Institute of Real Estate Management’s Global Summit in September 2018, he elaborated: “I need someone who’s going to demand a seat at the table.” And he issued a warning to asset managers that don’t provide that seat: “You’re setting yourself up for failure.”
As Furze reminded his IREM listeners, reducing expenses is much easier than driving revenue. Such was the successful approach at one Federal Realty property. After an ineffective, overpriced security contractor was dismissed, management set several cost-effective alternatives in motion. The staff asked local law enforcement to step up its presence and enlisted the property’s other service providers to watch for suspicious activities. All told, the change saved tens of thousands of dollars annually, Furze reported. Speak the language of finance. Managers should always bear in mind that each decision they make has an impact on the asset, which is, after all, an investment vehicle that creates cash flow. For that reason, talking about cap rates, NOI, absorption, fair market rent and vacancy costs should be second nature. “Even if you are talking to ownership in really simple return metrics—things as simple as payback period or cash-on-cash return—it signals to asset managers that you understand this piece of real estate as an investment vehicle,” Read said. Triage effectively. At almost any community, the staff could come up with a substantial wish list of upgrades and programs for residents. But before recommending any new items, managers must think about the economic payback. Apart from safety issues and legal mandates, every proposed expenditure should ultimately be tied to cash flow.
During the summer of 2017, the multifamily market in Columbia, S.C., took a major blow. The expansion of the V.C. Summer Nuclear Generating Station, a $9 billion project northeast of the state capital, was halted after years of delays and construction problems. The move cost some 5,000 local jobs. Occupancy at some communities slid as low as 30 percent. Waters Edge, a community owned by Lloyd Jones Capital, was among those affected.
Yet management’s efforts kept the impact in check and prevented occupancy from dipping below 85 percent. The key was investing in activities that promoted resident morale and involvement at the community. Highlights included a monthly breakfast bar; on-site and off-site activities, such as pizza night and an Easter egg hunt; and purchasing items like tennis equipment and air compressors which management made available for residents to borrow. The upshot of the strategy was a happy environment that encouraged residents to stay—and their friends to move in. Serve as a resource. Property managers should aspire to to serve as the go-to information resource for ownership. Rather than merely reporting what’s happening at a community, it’s far more valuable for a manager to provide insight into the local market. Nor are facts and figures regurgitated from market reports what asset managers are looking for. Instead, they need what Read calls the water-cooler chatter—for example, “how are consumer preferences changing, how are tenant demands changing, what’s influencing whether tenants are staying or going.”
Read predicted that technology will streamline reporting and other management functions in the future, allowing managers to operate more efficiently. “That will free up time for property managers to engage in different things,” he said. “Technology will fundamentally change property-management expectations.” Be creative and communicate clearly. Property managers must speak up whenever they have an idea about improving a property’s performance, even when the topic doesn’t fall within their stated job description. And when they do speak up, managers should take care to convey information effectively and deploy it in the field. “Show up, be very confident, know your stuff and be part of the team,” Federal Realty’s Furze urged his audience at the 2018 IREM Global Summit. “If you’re not welcome at the table, it says more about the asset manager than it does about you.”
Defusing tensions between client and service provider is also vital to communication. Friction tends to arise most often “when there is some disconnect on the quality of trust,” said Kim Collins, associate director for asset services in CBRE’s Indianapolis office, during the IREM Global Summit. In one case, Collins’ team remedied a frustrating breakdown in communications by creating a master spreadsheet that provided an all-in-one tracker for functions at the property. Read the March 2019 issue of MHN.
Lloyd Jones is a real estate investment, development and management platform that has operated in the multifamily space since the 1980s, doing more than $750 million in projects in total. Now, the Miami-based firm is pursuing a senior living pipeline, developing “independent living-light” properties under the Aviva 55 brand.
“In general, what we feel is that technology is going to rapidly allow people to age in place and not have to end up going to an assisted living, which as we know is getting more and more medically acute,” Lloyd Jones Chairman and CEO Chris Finlay told Senior Housing News.
Finlay’s perspective appears to be widely shared among senior living professionals. In a recent survey of industry pros conducted by architecture firm Perkins Eastman, respondents identified “aging in the community — decentralized care and services” as the No. 1 disruptor of the standard senior living business model.
In particular, respondents said that new technologies are enabling aging in place and decreasing older adults’ reliance on professional caregivers in settings such as assisted living.
Lloyd Jones is aiming to create middle-market, 55-plus age-restricted properties with these trends in mind.
“We’re not looking to do super high-end, we’re looking to do it as cost effectively as possible and do it where we provide services on an a la carte basis through relationships with food vendors, health care agencies, transportation and other services that these folks will need and use,” Finlay said.
The Aviva 55 model
Lloyd Jones is not a total newcomer to the senior living sector. The firm first developed an independent living/assisted living building in New Hampshire about 20 years ago. Currently, Lloyd Jones owns between more than 700 age-restricted units with no additional services, all located in Florida.
The idea for Aviva 55 came, in part, from observing the dynamics at these current 55-plus properties.
“We see how people really want to stay there and age in place,” Finlay said. “In one property, in Jacksonville, we have a lady who is 103 years old. She is completely independent. [The residents] make friends with their neighbors and they’re taking care of this lady … They become like little mini-families.”
For Aviva 55, the idea is that by layering on some services, Lloyd Jones can further facilitate aging in place in a middle-market product that should appeal to aging boomers who want to maintain their independence for as long as possible.
The plan is for Aviva 55 buildings to have a health and wellness coordinator and an activities coordinator on staff, to facilitate socialization and residents’ wellbeing. Lloyd Jones also intends to forge partnerships with local organizations to provide support services on an as-needed basis.
Already, older adults are increasingly embracing the on-demand economy to meet needs such as grocery delivery and transportation. To support this, Aviva 55 buildings will have robust internet infrastructure, Finlay said. Strong WiFi will also enable health care-related technology that might be put in common areas.
For example, Finlay is interested in facilitating telehealth by creating spaces equipped with tech for virtual doctor visits. It’s possible these spaces could also be used for onsite exams or treatment through partnerships with area providers.
From a physical plant perspective, expect Aviva 55 buildings to be three to four stories, with surface or podium parking, and between 100 and 200 units. It’s a 100% rental model, and Finlay is estimating development costs of about $250,000 per unit.
“You can provide a very nice amenity package and common area packages without getting crazy,” he said. “Most of what I see is over the top … We’re going to try to be as efficient as possible in the design … we’ll try to keep the interiors, while very nice, not ridiculous.”
In multifamily, Lloyd Jones has carved out a niche in workforce housing, and the firm plans to target a similar demographic with Aviva 55. This strategy also should insulate the properties from oversupply pressures currently hitting assisted living and more high-end independent living communities, Finlay said.
“I think there’s certainly some softness and a lot of competition in the high end space, in independent living and assisted living,” he said. “I think in most cases … when you start charging $7,000, $8,000, $10,000 a month, that’s a very small demographic that can afford that. Those properties are meeting with some resistance.”
The rollout
Lloyd Jones currently has three Aviva 55 projects on the books, and would like to eventually be developing 10 or more a year, Finlay said.
“We’ve got a big team out looking for sites,” he said. “We’re really hoping to scale this part of our business pretty rapidly.”
Last December, the firm closed on a deal to build a 150-unit building in Sunrise, west of Fort Lauderdale. The other projects are in Port St. Lucie and Naples. In Port St. Lucie, Finlay hopes to break ground before the end of the second quarter of this year, and in Naples, the timeline is to start development on the site within 6 months.
Lloyd Jones is also exploring acquisitions of existing independent living or assisted living buildings, to scale them back to the “IL-light” model of Aviva 55. Going the other way — acquiring a multifamily building and layering on services — is more complex from a regulatory perspective. In some cases, it could involve emptying the building of residents for 90 days before reopening as an age-restricted property, Finlay said.
Lloyd Jones has a number of capital partners for Aviva 55 projets, Finlay said, although he declined to disclose their names.
“There’s a ton of capital going after this space right now, because I think everybody realizes that the demographics are certainly overwhelming, and there’s a lot of need,” he said, adding that “capital is not a concern” in terms of scaling up Aviva 55.
Going forward, Lloyd Jones is looking to expand the Aviva 55 footprint beyond Florida. Texas is the next state being targeted, followed by Georgia, South Carolina and North Carolina.
Finlay has demonstrated good timing not only in his real estate career but prior to that. He was a pilot for Eastern Airlines for 15 years but took early retirement and got out of that company two years before it went bankrupt in 1989. Finlay describes that as “fortuitous timing”; it’s possible that the timing is also fortuitous for Lloyd Jones to be early mover in this emerging independent living-light product, if demand and competition ramp up as Finlay anticipates.
“I think there’s going to be a big move to this asset class,” he said.
If he’s not in the newsroom, Tim likes to be on the tennis court or traveling to a new destination. Recent highlights include Sri Lanka and Iceland.
Chris Finlay, CEO of Lloyd Jones LLC, shares his view on trends in elderly housing investment, the firm’s strategy and future plans. He also predicts how technology will impact the sector.
by Beata Lorincz
Lloyd Jones LLC is a real estate investment, development and management firm that specializes in multifamily and senior housing throughout Florida, Texas and the Southeast. The company focuses on independent living and age-restricted facilities (ILFs), as opposed to communities that include a medical component, such as assisted living facilities (ALFs) and memory care (MC).
According to the National Investment Center for Seniors Housing & Care (NIC), senior housing occupancy in the U.S. averaged 87.9 percent in the second quarter of 2018, representing an eight-year low. Multi-Housing News reached out to Lloyd Jones CEO Chris Finlay for further insight on the senior housing market.
What do you look for in a senior community? Finlay: Ideally, for existing assets, we look for properties 10 to 20 years old that we can acquire at substantially below replacement value, then improve or redevelop them so that they are competitive with new product. Unfortunately, very few of these opportunities exist. Consequently, our focus is on ground-up development, where we can create an active senior community designed specifically to our specifications—and to the expectations of our residents.
What are the latest trends in senior housing? Finlay: More and more seniors are renting by choice. They are looking for lifestyle flexibility as well as freedom from taxes and household/yard maintenance. And they like being around like-minded friends, in a socially active and healthy-lifestyle-focused environment.
What are the greatest challenges in owning senior communities? Finlay: Getting too attached to your residents. Our senior residents are wonderful. They are great to work with and so appreciative of the opportunities our communities provide.
Research shows that senior housing occupancy hit an eight-year low of 87.9 percent in the second quarter of 2018. What can you tell us about this drop? How does this impact the sector? Finlay: Fifty-five-and-over occupancy is over 95 percent and ILFs are at 92 percent. ALFs/MC are overbuilt in nearly all major markets. We just got back from a seniors conference and our strategy was absolutely confirmed. This is where they’ve headed and will be staying for a long time and thanks to technology, many seniors may never have to go to an ALF/MC or skilled nursing facility (SNF).
What are your predictions for the senior housing market going forward? Finlay: I see less demand for assisted living and memory care. With all the technology advances, seniors can avoid institutional facilities and stay independent for much longer.
Which are the most active multifamily markets at the moment? Finlay: Jacksonville and Daytona are two of the hottest markets in Florida. We also like Houston and Fort Worth, Texas.
What are your predictions for the market? Finlay: I think we have a few more years in this cycle, but demographics will continue to be positive for our industry for a very long time.
What can you tell us about the company’s strategy going forward? Finlay: We are not planning to expand to any new markets. Our strategy is to focus on 55-and-over independent senior living, which is still doing very well.
Lloyd Jones Capital’s purchase of The Westcott Apartments marked its second purchase in the market in less than a year. The Miami-based real-estate private equity firm paid $57.8 million for the 444-unit garden-style apartment complex in Tallahassee, Fla., expanding its footprint in multifamily assets located primarily in Florida, Texas and the Southeast.
Lloyd Jones, which specializes in the multifamily and senior housing sectors, was launched just four years ago, but its principals have been active in the industry for 38 years. The firm’s core strategy is to invest in cash-flowing assets that are undercapitalized or poorly managed and therefore offer value-add opportunities.
Lloyd Jones acquires, improves and operates multifamily assets with a holding strategy that ranges from three to 10 years, depending on the needs of its investors, which include institutional partners, family offices, private investors and its own principals.
Despite headwinds faced by multifamily—such as rising interest rates and construction costs as well as concerns about oversupply in some markets–Chris Finlay, chairman & CEO of Lloyd Jones Capital, remains bullish on the sector.
“It’s absolutely the best asset class to invest in, primarily due to demographics,” he said. “You have 75 or 80 million Millennials, and about a third of them are still living with Mom and Dad, so there’s a huge untapped market. On the other side of the spectrum, you have the Baby Boomers, about a third of whom are renting now, and every indicator seems to show that percentage is going to increase as they get older.”
Finlay said he’s not concerned about an oversupply of apartments, an issue he feels has been “exaggerated.” Due to high construction costs, most of the new supply coming online is Class A, he said, but his strategy is to focus on what he calls “market-rate workforce housing,” or housing that’s affordable to a median-income family. Since there’s little new workforce product in the pipeline, Finlay is confident that Lloyd Jones is transacting in a niche that will lead to good returns.
MARKET FUNDAMENTALS
Tallahassee is the state capital of Florida, and the multifamily market there is stable, with further growth projected. According to Yardi Matrix, in the second quarter of 2018, monthly rents averaged $1,173, up from $1,088 in the second quarter of 2016. Yardi forecasts average monthly rents to increase to $1,347 by the end of 2023. Occupancies have been holding steady, at 94.6 percent in the second quarter of 2018 and forecast to rise slightly to 94.8 percent by the end of 2023.
Unit in The Westcott Apartments
“The supply/demand balance is very good there,” Finlay said. “It’s an extremely stable market because the state government is there, and irrespective of the economy, that always chugs along.”
In addition, there are two major universities in Tallahassee—Florida State University and Florida Agricultural and Mechanical (A&M) University—that drive both the student housing and off-campus multifamily markets.
“Tallahassee is one of those markets that don’t boom but they don’t bust,” Finlay said. “It’s just a nice progressive growth—reasonable growth that you can count on.”
Other experts agree. “The Tallahassee market has seen consistent growth over the last few years, both from a value-appreciation standpoint as well as rent growth and stabilized occupancy,” said Jad Richa, managing director of Capstone Apartment Partners in Tampa, who handles investment sales.
Richa said that every deal he’s sold recently in the area “has some value-add component to it.” Cap rates on closed deals range from 6 to 7.5 percent, he said, attracting investors priced out of gateway markets that are “chasing yield” in Tallahassee.
THE DEAL
The Westcott Apartments is a 444-unit Class B+ property located at 3909 Reserve Drive, just five miles from the state capital building. Most of the apartments were built in 2000 (300 units), with an expansion completed in 2005 (144 units). The floor plans include one-, two- and three-bedroom units. Rents at the time of acquisition ranged from $950 to $1,250, and the occupancy rate was about 93 percent. Finlay said the trailing cap rate was 5.5 percent.
“It’s a great asset in a great location,” he added. “It’s in an area of Tallahassee that we see a lot of expansion happening, so there’s still room for growth. And it’s very easy to get to downtown.”
Public records disclose that Lloyd Jones, which took title to the property in the name of an affiliated entity named LJC Westcott LLC, paid $54.6 million for the property. The $57.8 million purchase price reported by the company represents its total investment, including its anticipated capital expenditures and rehab costs.
The Westcott Apartments Amenities
Finlay said he was presented with the opportunity by the listing broker, Jones Lang LaSalle’s Capital Markets Group, which also arranged a $40.3 million 10-year floating-rate mortgage through Freddie Mac on behalf of the buyer. The seller was Irvine, Calif.-based Oaktree Capital, and the deal took about 90 days to close.
The prior owners invested $4.8 million in capital improvements such as landscaping, playground updates, exterior painting, two clubhouse remodels, two fitness center upgrades and unit upgrades. In line with its management strategy, Lloyd Jones plans value-add upgrades and improvements to The Westcott’s existing amenities, which include two swimming pools, two fitness centers, playgrounds and tennis courts.
Finlay said he’s spending some $7,000 per unit to upgrade about a quarter of the units, adding granite countertops, tile backsplashes, stainless-steel appliances, vinyl-plank flooring, and washers and dryers—what Finlay calls “a standard upgrade package typical in a value-add strategy.” Although the program hasn’t been implemented yet, plans call for an average $125 rent premium for upgraded units.
After improving the units, repositioning the project and raising rents, Finlay expects to sell. “This will probably be a five-year hold,” he said. “The strategy is to do the improvements and try to operate the property more efficiently and then position it to sell in five or seven years.”
CRITICAL NEED
The Westcott is just one example of Finlay’s strategy to capitalize on the critical need for workforce housing in the United States. According to the Joint Center for Housing Studies of Harvard University’s “The State of the Nation’s Housing 2018,” nearly one-third of all U.S. households paid more than 30 percent of their incomes for housing in 2016. For renters alone, however, the cost-burdened share is 47 percent. And of the 20.8 million renter households that are burdened, some 11 million pay more than half their incomes for housing and are severely burdened.
“What we focus on is something that differentiates us from a lot of investment firms,” Finlay said. “We focus on the affordability of workforce housing.”
He added that the firm’s first-year projected rents at The Westcott are at 25 percent of the median income for Tallahassee. “HUD basically stipulates that 30 percent is the guideline, and anything above 30 percent is considered rent-burdened,” he said. “We’re not even close to that 30 percent. We’re providing great housing for workforce families in that market when all the new stuff is unaffordable.”
by Robyn A. Friedman
