National Asset Services Delivers 115% Cumulative Return to Investors in PineCrest
The impressive cumulative return was realized with the sale of the property to a well-known Kansas City area developer, Spring 2018.
When NAS assumed management responsibilities in 2011, the property’s payables were almost eight times greater than cash flow. NAS took quick action to improve the property’s balance sheet. Company executives greatly reduced payables by leveraging relationships with national vendors. NAS also worked with the new property management team to reduce payables through negotiations with local vendors. When reductions were not possible, negotiations took place to implement payment plans.
NAS focused on delivering a better quality living experience for residents, while reducing unnecessary expenses. A reduction in management fees lessened operation costs. Close supervision and proactive management brought necessary expenses, such as utilities, snow removal and pest extermination under control. Average occupancy has increased approximately 8-9% annually since the time NAS assumed management, while at the same time concessions were cut almost in half. The net effect on the cash flow was tremendous in building the trailing twelve financial results which laid the ground work for the possibility for a successful refinance scenario.
NAS WAS AMONG THE FIRST TO IMPLEMENT INNOVATIVE 721 ROLL-UP STRATEGY
After nine months of hard work to shore up the property’s balance sheet, NAS turned its focus to meeting an impending loan maturity for the 144-unit complex. The Pinecrest ownership originally consisted of 27 tenant-in-common co-owners, each with a deeded fractionalized interest in the property. The fact that institutional capital sources were reluctant to finance highly leveraged TIC properties burdened by economic stress, left property owners with limited options for refinancing.
NAS’ expertise, coupled with its legal and financial resources, enabled company leadership to develop and execute an innovative strategy on behalf of their clients. The strategy involved the reorganization and consolidation of the owners into one legal entity without the burden of tax consequences on previously deferred capital gains enjoyed by many of the owners; a new limited liability company headed by a newly created management committee consisting of former tenant-in-common owners. With the cooperation of the tenant-in-common owners, NAS was among the first in the Commercial Real Estate Industry to implement such a strategy.
The formation of the newly created entity enabled ownership to secure $11.4 million in financing, without the investment members having to provide any additional capital. There was no dilution of equity for any of the owners. They remain in control of their investment. The new entity allowed the members to take advantage of an IRS code that enabled the contribution of the property to the new ownership entity without realizing a gain or loss. Investors also maintained the benefit of the capital gains deferral that is afforded investors in tenant-in-common properties.
“PineCrest is a great example of our company’s ability to move quickly to reverse a trajectory of poor performance and stabilize the asset, while working to appreciate the property’s value,” commented Karen E. Kennedy, President and Founder of National Asset Services. “We have experienced a very gratifying, long term relationship with the investors in PineCrest Townhomes and are extremely pleased to have delivered such an extraordinary return.”
~ Karen E. Kennedy, President & Founder, National Asset Services