![Knightvest Capital Marks The First Investment of Its New Fund with Acquisition of 240-Unit Encore Apartment Community in North Texas](https://apollostore.blob.core.windows.net/multifamilybiz/News/the-encore-plano_10902.jpeg)
DALLAS, TX – Knightvest Capital, a vertically integrated multifamily investment firm, announced the acquisition of the Encore Apartments, located in the Legacy area of Plano in North Texas. The Encore Apartments represents the inaugural investment of Knightvest Capital’s second fund.
The Encore is a three-story, 240-unit community of one- and two-bedroom apartment homes constructed in 2013. The property also boasts a resort-style pool and fitness center. Knightvest plans to transform the community by renovating the unit interiors, modernizing the property amenities, and adding a resident lounge to further support the live-work-play environment for residents.
The community is located in the fast-growing market of North Plano, in an area known for its concentration of high-wage jobs, exemplary school district, and leading entertainment venues. As Knightvest completes the luxury renovations, the community will provide a high-quality, affordable housing alternative to new construction in the area.
“We’ve been greatly encouraged by investor interest in our new fund given our differentiated capabilities and strong track record of results,” said Knightvest Founder and CEO David Moore. “As the first investment of our new fund, this acquisition represents an important milestone, and it’s a perfect fit for our proven playbook given the value-add opportunity in one of the best markets in the nation.”
The Church of Jesus Christ of Latter-day Saints’ commercial real estate investment arm paid $133 million for a 315-unit apartment building in Plantation. The purchase comes as South Florida multifamily sales are soaring, despite elevated interest rates and other economic headwinds.
Property Reserve, which invests the church’s reserve funds, bought the eight-story Ellsworth at 1301 Southwest 80th Terrace from the property’s developers, Fort Lauderdale-based Stiles and Newark, New Jersey-based PGIM Real Estate, according to records and real estate database Vizzda.
The purchase breaks down to $422,222 per unit.
Completed last year on a 4.3-acre site, Ellsworth consists of one- to three-bedroom apartments, with monthly rents ranging from $2,915 to $4,234, according to the property’s website. Lease terms range from a year to 15 months.
Stiles and PGIM listed the building in March, with an asking price of roughly $150 million. Ellsworth was 93 percent leased at the time.
The building is adjacent to Temple Kol Ami Emanu-El, which sold the development site to the developers in 2021 for $5.4 million.
Stiles is a family-owned real estate development and investment firm, which has completed more than 52 million square feet of projects across the Southeast U.S., according to its website. It’s led by CEO Kenneth Stiles.
PGIM Real Estate, which had $210 billion of assets under management and administration as of March, is led by co-CEOs Cathy Marcus and Raimondo Amabile. PGIM Real Estate is the global investment division of PGIM, which is the asset management arm of Prudential Financial.
PGIM Real Estate has been selling off South Florida apartment properties since last year. Last summer, it sold the 293-unit Atlantic Preserve at 10900 Northwest 17th Street in Plantation for $86 million.
Property Reserve, led by CEO Ashley Powell, bought the majority of the 1.3 million-square-foot Beacon Logistics Park campus on the northeast corner of Northwest 107th Avenue and Northwest 145th Place in Hialeah for $174.3 million in December. The purchase included Buildings A, B, E and F, with developers Codina Partners and Affinius Capital planning to sell Buildings C and D to Property Reserve once they are completed.
Property Reserve is based in Salt Lake City, Utah. Separate from Property Reserve, the church has faced criticism over its limited public disclosure requirements on the church’s finances and its investment portfolio. Last year, the church and its investment portfolio manager, Ensign Peak Advisors, settled the Securities and Exchange Commission’s claims that the church’s investment portfolio was obscured through limited liability companies, The Wall Street Journal reported. The church and Ensign, which settled for $1 million and $4 million, respectively, neither admitted nor denied wrongdoing in the settlement.
South Florida is experiencing an uptick in multifamily deals this summer, despite a slowdown in demand from tenants and a plateauing of rents. Brookfield just dropped $107.5 million for the 444-unit Turtle Cove complex at 825 Cotton Bay Drive East in unincorporated Palm Beach County. Also this month, Mesirow paid $89.4 million for the 325-unit Retreat at Sawgrass Village complex at 3001 Northwest 130th Terrace in Sunrise.
Cost, sales comparison and income are the three main commercial real estate valuation approaches. Find out more about these methods and other helpful tools for the valuation of commercial properties.
1. Cost approach
The cost approach is a type of commercial property valuation method that involves separating the cost of the building from the land it’s on. The process looks at the value of the land using sales of similar properties, then adds the replacement cost of the building by considering its age, size, condition and other features that may influence value. Investors may use this method when comparable properties are difficult to locate, including when the building has unique improvements, or when the upgraded structures have added substantial value to the land.
But there are limitations to the cost approach. If comparable vacant land is unavailable, for example, the value will be a less accurate estimate.
2. Sales comparison approach
Also referred to as the market approach, this method uses recent property sales information to estimate the value of unsold assets. Looking at similar recently sold properties in the same area can help investors determine a fair market value for their building. For example, a six-unit apartment complex might be compared to a similar recently sold structure a few blocks away. Appraisers adjust the valuation to account for differences in age, size and condition between comparable properties.
The sales comparison method is most effective when there are many comparable properties available for analysis. However, for properties with unique features that are difficult to find in the market, the sales comparison approach may not be the best commercial real estate valuation method.
3. Income approach
Sometimes referred to as income capitalization, the income approach estimates the value of a property based on the income it generates. The formula for the income approach is the net operating income (NOI) divided by the capitalization rate (cap rate). The income approach may be best suited to office, retail and multifamily properties. But it can be particularly involved, as investors should also consider the amount of income generated, how efficiently the property operates and the building’s condition, among other factors, to determine how much the asset may sell for under current market conditions.
Other commercial real estate valuation methods
In addition to cost, sales comparison and income methods, investors may consider other less frequently used valuation approaches, including:
- Gross rent multiplier (GRM): This metric provides the ratio of a commercial property’s price to its annual gross rental income. For example, if you purchased a commercial property for $1 million and it generates $140,000 in gross rents each year, your GRM would be roughly 7.14 ($1 million/$140,000). This commercial real estate valuation formula is generally used to identify properties with a low price relative to their market-based potential income. Notably, it doesn’t include vacancy rates or expenses.
- Value per door: Used primarily for multifamily properties, this commercial real estate valuation method focuses on the number of units in a building to determines its value. For example, a building with 20 apartments priced at $4 million would be valued at $200,000 per door, regardless of each unit’s size.
- Cost per rentable square foot: Rentable square footage combines the usable square footage with the common areas benefitting renters, such as elevators and stairwells. Investors can use this method to assess the building’s value by figuring the cost per rentable square foot compared to the average lease cost per square foot. For example, if a building has 10,000 rentable square feet and the average cost to rent per square foot is $12 annually, the $1.7 million purchase price will generate 7% gross rental yield.
Commercial property valuation is an art
Regardless of the approach investors use, accurate data is critical to any commercial real estate valuation. But remember, even the best data is still an estimate. Ultimately, commercial property valuation is an art, not a science. There’s a subjective element, and the best commercial real estate investors have honed their gut instincts around finding the most attractive deals and most effective valuation methods for each transaction.