New Real Estate Investment: Cortland Med Center in Houston
Steve Nabity
October 16, 2024
Our New Real Estate Investment: Cortland Med Center in Houston, Texas
Houston real estate investment – the fourth-largest city in the US, a city with the second-highest population influx, and a large and diverse market. That’s not it, add prime location in Houston, tax benefits, strong cash flows, and investment in an area with limited supply potential. How does that sound for an investment opportunity?
That was Cortland Med Center, our latest investment in Houston, Texas where everything is big. Cortland Center Med Center is a 2003-built property with 344 units. A property with over 300 units offers the benefit of scale economies. But that was not the only thing we liked about this property. In this article, we will talk about the factors that made us invest in Cortland Med Center. We will also touch upon how those who missed out can participate in our next opportunity.
Why Cortland Med Center?
Real estate is a lot about location and we like where Cortland Med Center is – near the largest medical complex in the world, the Texas Medical Center. We also like that most of the area is developed and the land is occupied by various medical institutions. So, there is limited scope for new development and supply coming into this submarket.
It is estimated that there are 326,000 jobs within a 5-mile radius and 983,000 jobs within a 10-mile radius of the property. Close to 106,000 employees work in the Texas Medical Center. Cortland Med Center is a well-run property with high resident satisfaction. The property received the 2023 Kingsley Excellence Award for resident satisfaction. The Medical Center submarket has averaged 94% occupancy over the past 24 months.
We also liked that there was no major deferred maintenance on the property and the existing ownership had spent substantial amounts on renovations. Despite the amenities offered, some of the existing rents were below market and there was potential to burn-off some of the loss-to-lease (gap between market rents and in-place rents).
What made the deal attractive was a partnership with the Houston Housing Authority which led to a major tax exemption – more on this in the next section. But first, we want to mention some things about the Houston market. It has been very stable with rising rents and a high average occupancy. Houston will also see strong demand as its population is projected to gain the most in the next few years among major cities.
(source: Greater Houston Partnership, Moody’s Analytics, US Census, BLS)
The Tax Benefits and Strong Cash Flow
The general partners and sponsors for the Cortland Med Center have partnered with the Houston Housing Authority to provide certain units at restricted rents. This is part of Houston’s goal of making housing more affordable. So, the obligation is to restrict rents on 20% of the units to 60% AMI (area median income) and on 30% of the units to 80% AMI. The remaining 50% of the units can be rented out at market rates. In return for keeping rents restricted, the Houston Housing Authority has offered an 85% tax exemption.
While pro forma rents will decrease due to rent restrictions on half the property, it will lead to significant tax savings. This will have a direct impact on the annual cash flows and boost investment returns. We expect average cash-on-cash returns to be close to 6.6%. Higher cash flows boost the overall IRR on the investment. It also helps limited partners who invest with us get their capital back quicker and meet their hurdle rates.
The fact that the previous ownership has pumped in $7 million for renovations and maintenance also impacts our investment positively. It gives us a rent-paying turnkey community, providing relatively stable cash flows from Day 1.
A Fully Subscribed Opportunity
We have seen tremendous demand for this particular investment opportunity. Given the location of the property, its condition, the high levels of resident satisfaction, the submarket of the Medical Center, and the strong demographics in that area, it is not surprising.
Multifamily real estate is no doubt a popular segment of real estate among investors. However, prime multifamily real estate like the Cortland Med Center attracts high demand. We were fully subscribed for this opportunity in under 24 hours. It is a testament not just to the quality of the opportunity, but also the trust that our investors place in the team here at Skyline Point Capital.
Get More Content Like This Right to Your Inbox
Top-Tier Amenities and Resident Satisfaction
We have mentioned resident satisfaction a couple of times. While the quality of property management plays a big role in keeping residents happy, there are other factors at play as well. One of them is the amenities that a property offers. Let’s face it, if the property provides top-of-the-line facilities, then residents will want to continue living there.
Cortland Med Center has plenty of spaces, indoor and outdoor, to lounge. There is a cyber cafe, a play area with a billiards table, and a state-of-the-art fitness center. A pool with sundeck and scenic nature trails give the property a resort-like feel. There are storage units available for rent on the property.
Speaking about the interiors, there is wood-style flooring, granite countertops, and stainless steel appliances in all units. Digital programmable thermostats, designer tile backsplashes, washer-dryer appliances are included in all the units. The apartments are also equipped with gooseneck faucets, walk-in closets, and USB-integrated outlets. Some units have a den/study area and double-sink vanities.
The windows have 2-inch faux wood blinds. The living areas and bedrooms have ceiling fans. The cabinets have underlighting while the bedroom floors have carpet flooring. Overall, the amenities are on the premium side.
Thank You to Our Investors + Our Upcoming Opportunities
Cortland Med Center is an example of real estate investing Houston offers. There are many other promising cities and locations within the US that also offer promising investment opportunities. The key for a passive investor is to team up with the right people with experience executing deals.
The deal for Cortland Med Center was successful because our investors trusted Skyline Point Capital and showed overwhelming interest in the opportunity. We could not have done this deal without them. So we thank all our Cortland Med Center investors for making this happen. We are looking to expand our investor base and would appreciate it if you, our existing investors, refer us to your friends and family.
If you were not among the investors, then do not worry. We are currently looking at similar opportunities. Over the next few months, we will be sharing some exciting opportunities that our team is working on.
The best way to stay in the loop is to join the Founders Investor Club. We also encourage you to go through some of our complimentary resources, including ebooks, articles, and podcasts. You can access them here.
Investing in real estate does not mean you need to have millions of dollars. You can invest through our platform and build an exposure to a portfolio of properties. Real estate can be part of a portfolio of investments and help with risk management. More importantly, real estate investing can help you achieve your financial goals.