Chimney Hill Case Study - Piping Rock Partners

Cash Out Refinance Case Study - Chimney Hill Apartments

58 units in Middletown, Ohio

Simple Per Annum Return (to date): 23.85%*

NCREIF Benchmark Return: 7.8%

Net Equity Multiple: 8.5x (two cash out refinancings + unrealized gains)*

The Opportunity

Chimney Hill is a uniquely designed property that was owned by an Ohio-based family investment office. After adjusting their investment allocations, they decided to reduce their real estate exposure. Chimney Hill was the last remaining real estate asset in their portfolio, which made them a committed seller. This allowed us to negotiate very favorable acquisition terms for the property.

Chimney Hill is strategically located in an obvious growth corridor. It also had very competitive floor plans, good construction quality, and a competitive location in its submarket. In addition, although it was a smaller property, it had an on-site leasing office, a full-time on-site manager and a maintenance technician. This allowed us to buy the property based on net operating income that was inclusive of all remote management costs.

The Execution

We acquired the property in 2006 when lenders for assets in Ohio were scarce. However, our capital markets expertise enabled us to place 10-year, fixed-rate debt directly with a CMBS conduit at full leverage with no recourse. This increased our return on equity and lowered our risk related to recourse and personal guarantees.

After closing, we increased occupancy from 85% to 95% almost immediately. Ultimately, we were able to increase NOI by over 80%, and this allowed us to refinance the original CMBS debt with new FNMA agency debt. This capital event returned 100% of initial equity capital plus a significant multiple. Most important, we accomplished these results in a tertiary Midwest market that many thought was deteriorating.

In 2023, we refinanced again, and this returned another multiple of initial capital. We continue to own this asset today, and we see continued opportunities for NOI growth in the future from additional interior and exterior upgrades. To date, Chimney Hill has generated a 23.85% simple per annum return vs. the NCREIF benchmark return of 7.8%*.

The Lesson

Investors need to take a forward view before rearward looking data makes obvious recoveries apparent. Two years after we purchased Chimney Hill, Forbes published an article entitled "America's Fastest Dying Towns" and the market where Chimney Hill is located was numbered ten out of ten. To compile its list, Forbes used U.S Census Bureau data ranking income growth, the rate of domestic in-migration, the change in poverty levels and the percentage of the local population with advanced degrees.

However, the data that Forbes relied upon was at least two years old and backward looking. As a result, Forbes failed to recognize the recovery that was already underway. Today, the local market is burgeoning with new growth including a new 50 acre, $200 million mixed use development that will include a new 3,000-seat, multi-purpose event center, and Class A retail and office, hotels, and restaurants. This is just the largest of many new developments currently underway in the local market.

Now, we are initiating an exciting exterior renovation of Chimney Hill, including full replacement of the old siding with a bold new design, and adding smart home interior features, including video intercom security systems, smart locks and dedicated property-wide fiber optic wifi. These investments will allow us to future proof the property and take it confidently into the next stage of local growth.

GET INVESTMENT ALERTS

Exterior Prior to Renovation