Bluerock Residential Growth REIT Inc reported Wednesday that it is negotiating a non-binding letter of intent to acquire a 7.4 acre portion of an apartment community adjacent to Rex Hospital in Raleigh, NC.
Along with Atlanta-based TriBridge Residential, or TriBridge, an affiliate of Bluerock, the REIT says it intends to redevelop the parcel into a 242-unit, Class A apartment community with surface parking. The total projected development cost of the project is estimated to be $38.1 million, or approximately $157,500 per unit. Upon delivery, the average market rent per unit is expected to be approximately $1,400 per month.
Comprised of studio, one- and two-bedroom unit layouts, the Raleigh property is expected to offer floor plans averaging 864 square feet. The REIT’s underwriting projects a trended return on cost for the project of approximately 7.0% to 7.5% at stabilization. The projected development cost of $157,500 per unit compares favorably to recent comparable asset sales in the market in excess of $200,000 per unit.
Rex Hospital is a 660-bed facility with more than 5,400 employees and 34,000 inpatients annually. The property is also in close proximity to 600,000 square feet of medical and financial office space, and its central location will provide easy access to the Raleigh Beltline (Interstate 440), Interstate 40, the Crabtree Mall, the PNC Arena, North Carolina State University and the North Carolina Museum of Art.
Under the letter of intent, TriBridge would serve as BlueRock’s development partner. Pending execution of a mutually acceptable joint venture agreement, Bluerock and TriBridge would enter into a cost sharing agreement for pre-development costs. Bluerock expects to fund an equity investment of approximately $15.6 million, with TriBridge funding approximately $1.3 million. The remainder would be funded by a Bluerock affiliated fund.
Under Bluerock’s Invest-to-Own structure, it would be entitled to a current-pay preferred return on its investment at 15% per year. Once the project is developed and stabilized, it would have a right to convert its preferred equity investment into common ownership in the joint venture.
The transaction and groundbreaking could both occur during the third quarter.
BlueRock has also entered into a cost sharing agreement to pursue the acquisition of a 204-unit Class AA multifamily project in Durham, NC known as Whetstone Apartments, or Whetstone. Built in 2015, Whetstone is under contract for a purchase price of $35.6 million, or approximately $175,000 per unit.
Whetstone is located on the edge of downtown Durham less than one mile from Duke University. As of May 1, 2015, Whetstone was 43% leased at an average market rent per unit of $1,330 per month. Whetstone has been averaging approximately five new leases per week since early March 2015, and is projected to reach stabilization in or about the first quarter of 2016.