This 350+ unit, 1970s Class B community in Overland Park, KS suffered from physical decline despite a relatively strong submarket. Roof and foundation leaks resulted in over 50 down units and occupancy of 84% at takeover. Two of the three pools were closed and the outdated clubhouse impaired leasing. The consensus appraised value of $12-14 million was $4 million below the loan value of $18 million.
Given the age and total repair cost estimates, the lender expressed doubt about the ability to recover the full loan amount. We hired a management company that we knew well and with deep experience in the Kansas City market. Even they were unsure about the prospects for success.
Nevertheless, working with their construction services team, the building envelope was secured by replacing or repairing all 37 roofs and repairing bowed foundation walls. After the mold in down units was removed, 45 units were remediated and made ready for rental. With income rising, the clubhouse was updated with new paint, modern furnishings, and a better circulation plan. Aging and broken fitness center equipment was replaced and a new drainage and landscaping plan dramatically improved curb appeal. The property achieved 95% occupancy and successive rent increases over the 7 month capital improvement period.
After $1.7 million in capital expenditures and a 20 month holding period, the property was sold for $24.5 million and collected a $500,000 guarantee settlement from the borrowers.