Regular readers know we’re not sellers; once we complete a renovation and lease the property back up, we refinance, return capital to our investors, then hold.
The downside of this strategy is that it can take some time before Adaptive gets to participate in the cashflow generated from the property. Even when we are able to refinance 100% of the cash invested back out, we don’t participate until we pay the investors the preferred return that has accumulated during the renovation period (typically ~12 months).
That’s why the refinancing we closed on a small deal last week was so cool: We were able to pull out 100% of the cash invested AND enough to pay off the pref.
Here are the details:
- Acquired the property in early 2017
- Total investment of ~$1.7MM
- Cash out refinancing of ~$1.9MM closed in September 2018
So, our investors put in ~$1.7MM and then, about 16 months later, got back ~$1.85MM. Plus, now they own 70% of a very nicely renovated building which will spit out cash forever.
Adaptive did OK, too: In exchange for our work on the project, we got a nice fee, plus 30% of the building.
It’s a small deal, so the cashflow isn’t going to change anyone’s life. But we’re happy to just keep chopping wood, repeating the process over and over and over again.