When we started Archstone, we started with the thesis that multifamily was an underutilized market for investment, development, and property management. Specifically, we saw that we could target B and C Class assets to achieve a greater risk-adjusted return.
For example, consider a new, Class A property. Quality construction and desirable neighborhoods are sure to intrigue more affluent renters. But an economic downturn threatens demand for higher-end housing. And even when the economy is more favorable, competition is still high thanks to a fresh supply of similar housing options. These renters are prone to seeking newer developments that match their lifestyle expectations.
Contrast that with workforce housing. This renter base will always seek out an affordable housing option. That demand is still there regardless of the state of the economy. And competition is naturally constrained, as there is a limited supply of new, affordable housing.
Perhaps most importantly, as home ownership prices continue to go up, renting becomes the preferred long-term option for more and more people. The demand for multifamily rentals will continue to rise.
We recognize that the Midwest—with a stable, diverse economy and low cost of living—is ideal for these multifamily investments. With high housing costs, renting proves to be the best option for a high quality of life at an affordable price point. In fact, Midwest renters pay between 15-20% of their monthly take home. Compare that to the 30% rule thumb recommended by financial planners.
That kind of reliability means Archstone’s investments are anchored in real cash flow, not just growth speculation.
Our Approach
We look at markets across the Midwest to find opportunities to deploy capital, including Des Moines, Iowa City and Davenport—plus cities like Kansas City, Omaha, Columbus, Cincinnati, and Madison.
When seeking out Class C to B+ properties, we’re looking for underperforming assets. They might have fallen behind on maintenance and repairs, or are simply under-rented or underpriced. We take a strategic approach to renovating the properties, noting unit-specific needs. Our vertically-integrated in-house team works to update high-value assets.
From there, we consider the larger market as well as asset-specific factors and calculate new rental rates.
It doesn’t stop after stabilization, though. We continue to add value to these properties throughout our hold period, with ongoing maintenance and upkeep. We exit our assets at the end of our hold period, returning final dividends to our stakeholders.
Case study: The Hawthorne
A great example of our approach to multifamily comes from a Davenport property we acquired in March 2022.
Originally owned by an out-of-state group, The Hawthorne was discovered by our team in a state of complete neglect. In fact, the city had vacated and condemned the building. We recognized this as an opportunity to acquire the property at a very low basis, freeing up more of our budget for interior and exterior renovations.
Archstone Construction began an extensive capex plan which it completed a year later in March 2023. Totaling approximately $4 million, the team rehabbed all 96 units at a cost of roughly $40,000 per unit. By that July, the Hawthorne had achieved 100% occupancy.
Next, in September 2023, Archstone Capital refinanced the bridge loan with fixed-rate debt. This was at a time when interest rates doubled and cap rates expanded. With so much value added, investors received approximately 20% return of capital. And they're still enjoying free cash flow distributions.
Due to the quality of the execution, the project was accepted into the City of Davenport's Urban Revitalization Tax Exemption program.
To learn more about our investment approach, visit our Investing page.
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