New acquisition: A community of townhomes for rent in Nashville TN

EGCM are pleased to announce that we have invested $9.8 million in the purchase of a stabilized, 52-unit rental home community located in the Brentwood neighborhood of Nashville, Tennessee, about 25 minutes south of downtown.

This combined investment offers the stability of a well-rented, income-producing asset with long-term growth potential by building an expansion on an adjacent property.

Along with this acquisition, we have also invested $4.6 million in the purchase of an adjacent plot of land where we plan to expand the existing development.

At a strategic level, this investment fits with our thesis of affordable apartments and rental housing in the Sunbelt. From millenials to retirees, a broad swath of Americans have participated in the "great migration" from north to south over the past decade, driving steady demand for well-priced and well-located properties and stable returns for disciplined investors.

As we stated in our year-end letter to investors, we believe this long-term trend has been further accelerated by the pandemic. In an economy where remote work is becoming the norm, an increasing portion of the population will not need to live in expensive cities, looking for places that offer a more affordable cost of living and a friendly climate.

Business plan

Built in 2017, the existing structures are in excellent condition, and the property was 94% occupied at the time of acquisition, maintaining similarly strong occupancy levels during the COVID-19 pandemic. Based on our analysis of comparative facilities in the area, we believe there is room to increase rents as leases rotate.

Over the next two years, we plan to undertake a major expansion in the neighboring area. Our goal is to build an additional 170 to 180 rental apartments, bringing the total size of the completed development to about 225 units.

At this scale, we should be able to improve operational efficiencies while increasing the overall value of the property to a level that is within typical acquisition parameters for a large institutional buyer.

We expect the duration of this development to be around seven to ten years.

Why we invested

While the extent of the impact of the COVID-19 pandemic on the economy remains uncertain, we believe this investment is well positioned not only to weather a prolonged economic downturn, but also to potentially benefit from more permanent changes in behavior that may result.

A healthy local economy: Between 2010 and 2019, Nashville area population growth exceeded the national average by more than 75%. With recent growth, affordability has become a major concern, making suburban areas like Brentwood attractive to both renters and home buyers.

Social Distinction Friendly: The development offers a mix of townhomes and direct-entry apartments, which we think will be particularly attractive to renters who are looking for an extra level of social distance or simply need more living space as work and school norms change.

Income-generating asset: The property was approximately 94% occupied at the time of our investment, generating a steady cash flow through rental income.

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