Case Study: Anatomy of a Successful Class B Multifamily Renovation!

In the world of multifamily real estate investing, the value-add strategy has proven to be one of the most reliable paths to generating superior returns. At PrimeX Capital, we’ve refined our approach to Class B multifamily renovations through years of experience across multiple markets and economic cycles. This case study provides an in-depth look at one successful value-add projects, detailing each phase from acquisition to disposition and highlighting the key decisions that drove exceptional results.

The Property: Oakwood Gardens

Property Overview

Property Name: Oakwood Gardens (name changed for confidentiality)

Location: Suburban Raleigh, North Carolina

Size: 156 units

Year Built: 1992

Unit Mix:

•48 One-Bedroom/One-Bath (650 sq ft)

•84 Two-Bedroom/Two-Bath (950 sq ft)

•24 Three-Bedroom/Two-Bath (1,200 sq ft)

Property Characteristics:

•Garden-style community with 13 two-story buildings

•Surface parking (1.5 spaces per unit)

•Amenities included a dated clubhouse, basic fitness center, and swimming pool

•Approximately 8 acres of land with mature landscaping

•Occupancy at acquisition: 91%

Phase 1: Acquisition Strategy

Market Selection

Our investment thesis began with identifying the right market. We selected the Raleigh-Durham MSA based on several compelling factors:

Economic Fundamentals:

•Job growth exceeding 2.5% annually

•Population growth of 1.8% annually

•Diverse employment base across technology, healthcare, education, and government sectors

•Major employers within 5 miles of the property adding jobs

Supply-Demand Dynamics:

•Limited new construction in the Class B segment

•Significant rent gap between Class B and Class A properties ($400+ per month)

•Occupancy rates above 94% market-wide for Class B properties

•Absorption exceeding new deliveries

Submarket Analysis

Within the broader Raleigh market, we focused on the northeastern suburbs due to:

Location Advantages:

•Proximity to major employment centers (15-minute drive to downtown Raleigh)

•Strong school district (top 20% in the state)

•Convenient access to retail and services

•Limited developable land constraining new supply

Demographic Trends:

•Median household income of $72,000 within a 3-mile radius

•Population growth of 2.1% annually in the submarket

•Renter population increasing faster than owner population

•Favorable age demographics (35% of residents between 25-44)

Property Identification

After analyzing over 30 potential acquisitions, we selected Oakwood Gardens based on several key criteria:

Value-Add Potential:

•Original unit interiors with dated finishes

•Rents approximately $200-250 below renovated comparables

•Underutilized common areas and amenities

•Operational inefficiencies under previous management

•Deferred maintenance that was correctable without major structural issues

Financial Metrics:

•Purchase price: 18.7million(18.7 million (18.7million(120,000 per unit)

•Going-in cap rate: 5.2%

•Price per square foot: $118

•Existing rents approximately 15% below market

Physical Condition:

•Good structural integrity with no major foundation or roof issues

•Functional but outdated mechanical systems

•Attractive architectural design with good curb appeal potential

•Well-maintained landscaping and mature trees

Phase 2: Due Diligence and Acquisition

Comprehensive Due Diligence

Our due diligence process was critical to validating our investment thesis and identifying both risks and opportunities:

Physical Inspections:

•Structural engineering assessment

•Roof inspection (identified 3 buildings needing replacement within 2 years)

•HVAC systems evaluation (average age 8 years, 20% requiring immediate replacement)

•Plumbing and electrical systems assessment

•ADA compliance review

Environmental Assessment:

•Phase I environmental site assessment (clean)

•Asbestos testing (minimal presence in some popcorn ceilings)

•Lead paint testing (negative)

•Radon testing (levels within acceptable range)

Financial Analysis:

•Detailed review of historical operating statements (3 years)

•Utility consumption analysis (identified 25% potential savings)

•Tax assessment review (successfully appealed assessment, reducing annual taxes by $42,000)

•Insurance cost analysis

Market Research:

•Comprehensive rent survey of 12 comparable properties

•Analysis of recent renovated unit premiums

•Review of concession trends in the submarket

•Evaluation of amenity offerings at competing properties

Acquisition Financing

We structured the acquisition financing to balance leverage, flexibility, and cost:

Debt Structure:

•$13.1 million senior loan (70% LTV)

•3-year term with two 1-year extension options

•Interest rate: SOFR + 2.75% (with rate cap)

•24 months of interest-only payments

•Flexible prepayment terms after 18 months

Equity Structure:

•$6.2 million total equity requirement (including acquisition costs and renovation budget)

•$1.2 million sponsor co-investment (20% of equity)

•$5.0 million from limited partners

•8% preferred return to limited partners

•70/30 profit split (LP/GP) after preferred return

Business Plan Development

Based on our due diligence findings, we developed a comprehensive business plan with several key components:

Revenue Enhancement Strategy:

•Unit renovation program with two-tier options (8,000and8,000 and 8,000and12,000 per unit)

•Common area improvements to enhance marketability

•Amenity additions including dog park, package lockers, and co-working space

•Implementation of RUBS (Ratio Utility Billing System)

•Smart home technology package as premium option

•Reserved parking program for additional income

Expense Reduction Strategy:

•Management company change to reduce fees by 0.5%

•Staffing restructuring to improve efficiency

•Energy efficiency improvements (LED lighting, low-flow fixtures)

•Preventative maintenance program implementation

•Insurance program optimization

•Waste management contract renegotiation

Capital Improvement Plan:

•1.56millionforunitrenovations(1.56 million for unit renovations (1.56millionforunitrenovations(10,000 average per unit)

•$420,000 for exterior improvements

•$280,000 for amenity enhancements

•$240,000 for mechanical systems upgrades

•$100,000 contingency reserve

Phase 3: Execution of the Value-Add Strategy

Initial Stabilization Period

The first 90 days after acquisition focused on stabilizing operations and preparing for the renovation program:

Management Transition:

•Implemented new property management software

•Retained 2 of 4 existing staff members

•Enhanced training and standard operating procedures

•Established performance metrics and reporting systems

Immediate Physical Improvements:

•Addressed critical deferred maintenance items

•Enhanced curb appeal through landscaping improvements

•Refreshed exterior paint on trim and doors

•Repaired and resurfaced parking areas

•Deep cleaned all common areas

Operational Enhancements:

•Implemented new marketing strategy and branding

•Revised screening criteria to improve tenant quality

•Established preventative maintenance schedule

•Renegotiated service contracts (landscaping, pest control, etc.)

•Conducted energy audit and implemented quick-win efficiency measures

Unit Renovation Program

Our unit renovation program was implemented strategically to maximize returns while minimizing disruption:

Renovation Scope:

Standard Package ($8,000/unit):

•New kitchen cabinets with modern hardware

•Granite countertops

•Stainless steel appliance package

•Luxury vinyl plank flooring throughout living areas

•New lighting fixtures

•Two-tone paint scheme

•Updated bathroom vanities and fixtures

•Framed mirrors in bathrooms

Premium Package ($12,000/unit):

•All standard package items

•Subway tile backsplash in kitchen

•Undermount kitchen sink with pull-down faucet

•Tile surrounds in bathrooms

•Smart home package (thermostat, locks, lighting)

•Ceiling fans in bedrooms and living room

•Built-in microwave

•USB outlets in kitchen and bedrooms

Renovation Strategy:

•Focused initially on vacant units to establish market acceptance

•Created two model units (one for each package)

•Implemented premium pricing for renovated units

•Offered existing residents opportunity to transfer to renovated units

•Scheduled renovations to maintain occupancy above 85%

•Phased approach targeting 8-10 units per month

Renovation Results:

•Standard Package: Achieved $225 average rent premium

•Premium Package: Achieved $325 average rent premium

•92% of residents selected the Premium Package when given the option

•Average renovation time: 15 days per unit

•Renovation ROI: 30% for Standard Package, 32.5% for Premium Package

Common Area and Amenity Improvements

Concurrent with the unit renovation program, we implemented strategic common area improvements:

Clubhouse Transformation:

•Complete interior redesign with modern furnishings

•Addition of co-working space with private booths and conference room

•Coffee bar and resident lounge area

•Updated business center with printing services

•New leasing office layout to enhance prospect experience

Amenity Enhancements:

•Expanded fitness center with modern equipment and yoga area

•Pool area renovation with new furniture, grilling stations, and cabanas

•Addition of package locker system

•Creation of dog park with agility equipment

•Installation of outdoor gathering areas with fire pits

Technology Upgrades:

•Property-wide WiFi in common areas

•Smart access control system for amenity spaces

•HD security camera system

•Online resident portal for maintenance requests and payments

•Digital leasing tools for virtual tours and application processing

Operational Improvements

Beyond physical renovations, we implemented several operational enhancements that significantly improved NOI:

Revenue Management:

•Implemented dynamic pricing software

•Optimized lease expiration management to reduce turnover during slow seasons

•Created premium pricing tiers based on location, view, and floor level

•Developed ancillary income streams (storage, reserved parking, pet fees)

•Reduced concessions through improved marketing and resident experience

Expense Control Measures:

•Implemented preventative maintenance program reducing repair costs by 18%

•Installed LED lighting throughout common areas, reducing electricity costs by 22%

•Upgraded to low-flow fixtures, reducing water consumption by 15%

•Renegotiated service contracts, saving approximately $36,000 annually

•Implemented energy management systems for common areas

Resident Experience Enhancements:

•Created resident events program to build community

•Implemented 24-hour maintenance response guarantee

•Developed move-in welcome package

•Established resident referral program

•Enhanced communication through resident app and regular newsletters

Phase 4: Performance Monitoring and Adjustments

Key Performance Indicators

Throughout the hold period, we closely monitored several key metrics to track performance against projections:

Financial Metrics:

•Monthly NOI growth

•Expense ratio (stabilized at 38%, down from 45% at acquisition)

•Rent growth by unit type and renovation package

•Economic occupancy vs. physical occupancy

•Bad debt and delinquency rates

Operational Metrics:

•Average days to lease vacant units

•Lease renewal rate (increased from 52% to 68%)

•Maintenance response time

•Resident satisfaction scores

•Online reputation ratings (improved from 3.2 to 4.6 stars)

Renovation Metrics:

•Cost per unit vs. budget

•Time to complete renovations

•Rent premiums achieved

•Return on investment by component

Strategic Adjustments

Based on performance data and market feedback, we made several strategic adjustments during the hold period:

Renovation Program Refinements:

•Added USB outlets to Standard Package based on resident feedback

•Upgraded appliance package to include French door refrigerators in Premium Package

•Simplified bathroom tile selections to reduce installation time

•Added smart thermostats to all renovated units based on strong ROI data

Marketing Strategy Evolution:

•Shifted marketing budget from traditional sources to digital channels based on lead tracking

•Enhanced social media presence with resident testimonials and renovation showcases

•Implemented geofencing advertising targeting nearby luxury communities

•Developed corporate housing program for local businesses

Operational Adjustments:

•Restructured maintenance team to include dedicated make-ready specialist

•Implemented bulk purchasing program for maintenance supplies

•Adjusted staffing model based on traffic patterns

•Enhanced training program for leasing consultants

Phase 5: Refinancing and Additional Value Creation

Strategic Refinancing

At the 24-month mark, we executed a strategic refinancing to return capital to investors while maintaining ownership:

Refinancing Structure:

•New loan amount: $22.5 million

•Valuation: 30million(30 million (30million(192,300 per unit)

•LTV: 75%

•Interest rate: 4.85% fixed for 7 years

•30-year amortization

•Cash-out amount: $8.2 million

Capital Distribution:

•Returned 65% of initial investor capital while maintaining ownership

•Reduced ongoing debt service through lower interest rate

•Created additional capital improvement reserve for Phase 2 enhancements

•Improved cash-on-cash returns for remaining equity

Phase 2 Value-Add Initiatives

Following the refinancing, we implemented a second phase of value-add initiatives:

Additional Amenity Enhancements:

•Addition of package locker system with refrigerated compartments

•Creation of outdoor fitness circuit

•Installation of electric vehicle charging stations

•Enhancement of pool area with resort-style features

•Addition of community garden

Technological Upgrades:

•Property-wide WiFi mesh network

•Smart home technology package expansion

•Enhanced security features including license plate recognition

•Energy management systems for common areas

•Resident app with expanded functionality

Sustainability Initiatives:

•Solar panel installation on clubhouse roof

•Smart irrigation system reducing water consumption

•Energy-efficient window replacements in phases

•Addition of on-site recycling program

•Installation of rainwater collection system for landscaping

Phase 6: Disposition Strategy

Market Timing and Positioning

After a 4.5-year hold period, we determined that market conditions were optimal for disposition:

Market Conditions:

•Cap rates had compressed by approximately 50 basis points since acquisition

•Institutional investor demand for value-add multifamily had increased significantly

•The property had achieved stabilized occupancy of 96% with strong rent growth

•All major capital improvements had been completed

•The submarket had experienced significant appreciation

Positioning Strategy:

•Engaged top multifamily brokerage team with institutional buyer relationships

•Developed comprehensive marketing package highlighting value-add execution

•Emphasized remaining upside potential through continued rent growth

•Showcased operational efficiencies and expense control measures

•Highlighted the property’s strong online reputation and resident satisfaction

Sale Process and Results

The disposition process was executed methodically to maximize value:

Marketing and Bidding:

•Conducted targeted marketing to pre-qualified buyers

•Hosted property tours for 14 serious prospective purchasers

•Received 8 qualified offers

•Conducted best and final round with top 4 bidders

Final Transaction:

•Sale price: 34.3million(34.3 million (34.3million(220,000 per unit)

•Cap rate: 4.7%

•Price per square foot: $220

•Buyer: Regional investment firm with strong presence in the Southeast

Financial Outcomes:

•Total project IRR: 24.3%

•Equity multiple: 2.4x over 4.5-year hold

•Average annual cash-on-cash return: 8.7%

•Total investor profit: 10.6millionon10.6 million on 10.6millionon5.0 million investment

Key Success Factors and Lessons Learned

Critical Success Factors

Several factors were instrumental in achieving exceptional results on this project:

1. Thorough Due Diligence

Our comprehensive pre-acquisition analysis identified both opportunities and potential pitfalls, allowing us to develop a realistic business plan with appropriate contingencies. The detailed understanding of the property’s physical condition, operational performance, and market position provided a solid foundation for the value-add strategy.

2. Strategic Renovation Scope

Rather than over-improving the property, we carefully calibrated our renovation program to match market demand and achieve optimal returns. The two-tier renovation approach provided flexibility and allowed us to test market acceptance before full implementation.

3. Operational Excellence

While physical improvements were important, the operational enhancements we implemented had an equally significant impact on NOI. The combination of revenue optimization, expense control, and resident experience improvements created value beyond what physical renovations alone could achieve.

4. Phased Implementation

By carefully sequencing renovations and improvements, we maintained strong occupancy throughout the hold period. This approach minimized income disruption and allowed for real-time adjustments based on market feedback and performance data.

5. Strategic Capital Events

The mid-hold refinancing created significant value by returning capital to investors while maintaining ownership during the continued appreciation phase. This approach enhanced overall returns while reducing risk for investors.

Lessons Learned

Every project provides valuable lessons that inform future investments:

1. Renovation Timing Optimization

In retrospect, we could have accelerated the renovation pace during the first year to capture rent premiums sooner. Market demand for renovated units was stronger than initially projected, and we had sufficient capital reserves to support a faster implementation.

2. Amenity Prioritization

The dog park and package locker system generated the highest resident satisfaction scores and leasing impact relative to their cost. Had we implemented these amenities earlier in the process, we might have achieved faster lease-up of renovated units and stronger rent premiums.

3. Staff Retention Strategies

We experienced higher-than-expected turnover in the maintenance team during the first year, which temporarily impacted service levels. Implementing stronger retention incentives and clearer career development paths could have mitigated this challenge.

4. Technology Integration

The various technology systems we implemented (property management software, smart home features, energy management) would have benefited from better integration. In future projects, we plan to develop a comprehensive technology strategy at the outset rather than adding components incrementally.

5. Resident Communication

While our renovation program was successful, some residents expressed frustration with communication about construction schedules and amenity closures. A more robust communication plan with multiple channels and greater advance notice would have improved the resident experience during the renovation phase.

Conclusion: The Value-Add Advantage

The Oakwood Gardens case study demonstrates the power of a well-executed value-add strategy in multifamily real estate. By identifying the right property in a strong market, implementing strategic physical and operational improvements, and executing a disciplined business plan, we were able to transform a dated, underperforming asset into a highly desirable community that generated exceptional returns for investors.

This approach—combining physical renovations, operational enhancements, and strategic financial management—represents the core of PrimeX Capital’s investment philosophy. We believe that multifamily value-add investments continue to offer one of the most attractive risk-adjusted return profiles in real estate, particularly when executed with the attention to detail and operational focus illustrated in this case study.

For investors seeking to participate in similar opportunities, PrimeX Capital continues to identify and acquire value-add multifamily properties across select growth markets in the Southeast. Our disciplined approach, refined through experiences like Oakwood Gardens, allows us to consistently deliver superior returns while providing quality housing for our residents.

Ready to learn more about PrimeX Capital’s multifamily investment opportunities? Contact our investor relations team at [contact information] or visit our website at https://1primexcapital.com/ to explore our current offerings and investment approach.

This article is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investment in real estate involves risk, and past performance is not indicative of future results. Potential investors should conduct their own due diligence before making any investment decisions. The case study presented has been modified to protect confidential information while maintaining the integrity of the investment narrative and results