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Value-Add Consulting |
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Some of the most profitable investments in apartment properties are "value-add" investments. Value-add opportunities arise when rents in "as-is" condition are materially lower than market rents. Value-add capital improvements can raise property rents to market capacity rents.
Typically, a value-add investment will return 200% profit on the capital improvement costs. Many individual investors do not take advantage of this opportunity because they simply don’t know that their property is operating below market capacity, or don’t feel that they can comfortably execute a value-add.
NOI’s principals have extensive experience in analyzing and executing value-adds. We offer a complete menu of value-add services: feasibility studies with ROI analysis, capital investment recommendations, construction and re-lease planning, construction supervision, and re-leasing supervision. Further, we provide specialized underperformance consulting for value-add investments that have not fully succeeded.
To establish preliminary feasibility, NOI visits the client property and competing properties in the local submarket, and analyzes the submarket demographics. Our team constructs a grid to compare all important aspects of the client property to those of its competition. NOI’s onsite team evaluates and assigns grades to those aspects of the property most pertinent to the value-add: common area aesthetics; common amenities; unit mix, sizes, and rents; unit aesthetics; unit amenities; tenant demographics and incomes; security issues; deferred capital replacement; recurring maintenance issues; property age and construction type, etc.
Based on our initial analysis, we prepare a value-add plan that maximizes the cost-benefit yield of capital improvement spending. Our guiding principle is that each expenditure, by itself or in conjunction with other planned expenditures, must enhance tenant living conditions in a way that translates to higher rent and/or lower tenant turnover, and/or must materially reduce operating expenses.
NOI next analyzes the revenue that will be lost during construction and re-leasing, and the various costs of re-leasing the units. The full cost of the value-add is equal to the present value of:
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(1)
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The amount spent on value-add capital improvements; PLUS
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(2)
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Revenue lost during construction and re-leasing; PLUS
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(3)
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Re-leasing expenses; MINUS
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(4)
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Capital expenditures made in the value-add that would have been needed anyway. |
NOI concludes with a written report of the recommended, achievable value-add operating plan. The plan includes capital allocations, detailed month-by-month construction schedules, capital spending schedules, re-leasing schedules, and transitional monthly forecasts of revenue growth and operating expenses from implementation through stabilized performance at the new, higher rent level. Frequently, we suggest timing and pricing for disposition of the asset when the value-add is complete. After the client has reviewed the report, we strongly encourage a web conference or in-person meeting for the client to raise questions, discuss implementation strategies, or challenge our findings.
NOI offers a number of services to assist in executing the value-add. We may continue to consult regularly with the client and monitor monthly financial progress. NOI can directly supervise execution of the value add, refer contractors and vendors, and/or invest opportunity capital with ownership in the value-add, when our skill set will materially improve the outcome.
In addition, NOI provides consulting for value-add investments that have not fully succeeded. NOI prepares analysis and recommendations to improve the cost-benefit yield from capital improvement allocations, and to improve execution of Performance FundamentalsSM at the property.
Individual investors forego significant profits if they miss out on a possible value-add investment. NOI provides the expertise to analyze and exploit that opportunity. |
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| Case Studies |
| Value-Add Consulting |
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