After Multifamily Upgrades, Investor Exits Austin for Now

AUSTIN, TX—New York-based Castle Lanterra Properties purchased a class-A 350-unit rental community, Villas Tech Ridge at 13838 The Lakes Blvd., before Austin was significantly on institutional investors’ radars. This was in February 2016, and the firm set about subsequently refreshing and modernizing the property to compete with surrounding newly constructed product.

Castle Lanterra recently sold the asset to New York Life. CLP is exiting the investment in line with an original business plan that allowed the firm to boost net operating incomes and maximize returns. The property is currently 98% leased.

“We purchased the property before Austin was on the radar of many institutional investors and were able to implement upgrades in concert with the city’s exceptional residential and economic boom,” said Elie Rieder, CEO of Castle Lanterra.

Built in 2008, Villas Tech Ridge includes open floor plans with 9-foot/vaulted ceilings, granite countertops, mahogany cabinets and ceramic tile. The property has the only three-bedroom units in the submarket.

CLP began upgrading finishes and installing smart home systems on select units, paving the way for the buyer to continue the process in line with market demand. The investor also refreshed amenities including the clubhouse, leasing office, gym and pool, changing layouts and updating finishes. The new gym features an expanded workout area with a separate space for classes, yoga and a fitness-on-demand system that offers a wide variety of workouts. The clubhouse was refreshed with new finishes, games and social areas. Pool upgrades included new fencing, a glass entrance and landscaping.

“The upgrades positioned the property to compete well with newly constructed and renovated properties in the submarket and they have been very well received by both current and prospective residents, boosting our retention and new lease conversion rates,” said Austin Alexander, managing director with Castle Lanterra Properties. “This is an exceptional institutional-quality property located in a dynamic submarket within a booming market that is likely to perform well over the long term.”

In recent years, Austin has experienced high population influx thanks in large part to Millennials who favor renting to owning. The city has an economy fueled by tech, and a relatively low cost of living and doing business. Austin is known for its laid-back atmosphere and has been dubbed the “Live Music Capital of the World” as well as “Silicon Hills,” given the presence of tech giants such as Apple, Freescale, AMD, Motorola and National Instruments.

Villas Tech Ridge is part of the 236-acre Tech Ridge master-planned community, a fast-growing area that houses many of world’s largest tech companies including Dell, Samsung, IBM and Applied Materials. The property was developed as part of the Austin Energy Green Builder Program, an environmentally driven program that requires special consideration for green and energy-saving opportunities. The location has high visibility, nearby retail, access to highways and public transportation, and is situated within the Pflugerville School District.

Alexander recently shared some insights behind the initial acquisition, local market appeal and the key property improvements that were made during the hold period.

GlobeSt.com: Why did you purchase the asset? What was compelling/appealing?

Alexander: We purchased the asset due to a combination of its physical quality with large unit sizes and unique layouts. It has the only three-bedroom units in the submarket which are attractive to corporate tenants, its location within both a fast-growing market and booming submarket, and a purchase price that we believed represented a compelling cost basis.

GlobeSt.com: What about the Austin market drove this decision?

Alexander:  Austin has exhibited strength this cycle driven by high population in-flows especially of Millennials who favor renting to owning, a dynamic economy with a significant tech component, a relatively low cost of living and doing business, and no indications that any of these factors are likely to change in the near future.

GlobeSt.com: This is your third disposition in Austin in the last year. What does that say about the market and your position?

Alexander: While we still believe in Austin over the long term, with significant increases in our properties’ NOIs over our hold period and strong investor demand for assets now, we chose to lock in some gains and exit at favorable prices relative to our purchase basis.