Full Cycle Case Study - Charleston Square

- 88 Units in Columbus, IN
- Aquisition Date : April 2012
- Disposition Date : April 2025
- 19.16% Net IRR
- 4.10x Net Equity Multiple
- 31.73% Net ROE
The Opportunity
Charleston Square is an 88-unit apartment property that Piping Rock purchased in an off market transaction with no competition. Rents were at least 20% below market, even after accounting for the dated exterior and interior finishes. The property was the last remaining asset in a larger portfolio that had been sold, and the ownership group wanted a quick exit. We assumed the existing agency debt at closing and within the first 12 months the property's cash flow was sufficient to pay the 8% Preferred Return.
The Execution
The property had minor deferred maintenance which we addressed within the first six months. In addition the pool area occupied a very prominent location with high visibility where additional investment could have an immediate impact. Consequently, we focused our initial upgrade efforts on new pool fencing, furniture and landscaping. Simultaneously, we increased rents to market on renewals and turns while deliberately minimizing interior upgrade costs.
Two years after closing, the property was producing annual cash flow in excess of 10%, and debt coverage was in excess of 2x. Within four years, we had grown NOI by almost 90% with limited investment in interior upgrades. This allowed us to refinance the acquisition debt with new fixed rate HUD 223(f) debt that fully amortized to zero over 35 years. The new long term fixed rate, fully amortizing debt removed all refinancing risk. Most important, proceeds were sufficient to return 100% of initial capital plus a multiple.
Ultimately, we invested surplus cash flow in the more extensive interior upgrades shown below. Combined with the 2016 refinancing proceeds, this allowed us to generate a 19% net IRR on the 2025 sale after a thirteen-year hold.
The Lesson
Our original business plan was to minimize costs on interior upgrades. Nevertheless, we did invest in full interior upgrades where necessary. This allowed us to grow rents, but it also provided lenders with a window on what was possible at Charleston Square. Ultimately, we refinanced into long term 223(f) HUD that fully amortized to zero over 35 years to de-risk the investment and hold long term. However, the new lender required us to implement our interior upgrade program (new stainless steel appliances, cabinets, countertops, fixtures, lighting, paint and flooring) on 44 unrenovated units within 12 months closing. In retrospect, we would have focused more time and capital on interior upgrades during the intitial hold period to avoid this lender mandate and the compressed time frame associated with it.
Pool Area Prior to Remodel

Kitchen Before Remodel

Pool Area After Remodel

Kitchen After Remodel
