St Pete Beach Apartment Trades at Below Market Cap Rate
Due to the price point that the seller was targeting, the ability to get traditional financing was nearly impossible because of the lack of Day 1 cash flow.
ST PETE BEACH, FL—Indiana-based Pedcor Cos. has purchased Sand Cove Apartments here from 3813 Sand Cove Inc., for $14.5 million, or $201,389 per unit. Marcus & Millichap announced the sale.
Ned Roberts, Adam Podbelski and Jason Hague, senior investment specialists in Marcus & Millichap’s Tampa office, tell GlobeSt.com that soon after takeover the buyer is planning a massive renovation project throughout the entire community, inside and out. They are expected to take one to two years to complete everything.
“The extremely rare chance to acquire significant scale in the submarket attracted numerous prospective buyers from across the county,” says Roberts. “That competition, combined with a significant value-add opportunity, allowed us to generate this record-setting purchase price,” he adds.
Along with the price per unit record, the waterfront asset traded at a well-below market capitalization rate of 3.46%. Sand Cove is by far the largest multifamily community in St. Pete Beach. At 72 units, it is more than three times the size of the next largest community and represents more than 20% of the market-rate apartment stock in the city.
“This was one of the most difficult deals we’ve transacted on during our tenure at Marcus & Millichap,” Hague says. “Despite some major hurdles along the way, Ned, Adam, and myself were able to work as a team to get this deal to the finish line. We ended up finding the perfect buyer who shared our vision for the future potential of this asset, and we’re excited to see that vision executed on over the next few years.”
Hague said that due to the price point that the seller was targeting, the ability to get traditional financing was nearly impossible because of the lack of Day 1 cash flow. This meant Marcus & Millichap could only deal with a buyer who had the ability to purchase the deal all cash, or find a buyer willing to get creative with the debt piece. They had to find a buyer that understood the future potential of this well located asset and that was also comfortable with the very slim return margins they would be seeing for the first year prior to the completed renovations and rent increases.
All units at the property feature water and pool views. Sand Cove Apartments has frontage to Gulf Boulevard which sees 23,000 vehicles per day.
“Our ability to showcase the demonstrable upside offered by Sand Cove was ultimately what allowed us to compress the takeover capitalization rate to sub-3.5%,” says Podbelski. “The tremendous opportunity provided by both the asset’s size and location are what attracted a very-well experienced owner/developer to close on an all-cash basis at contract price with non-refundable money day-one.”