Why New Standard Equities Dropped Anchor on Whidbey Island

This deal penciled well from the start, but a variety of factors made it extraordinarily attractive to the buyer.

Oak Harbor, Wash. – A 107-unit multifamily property in Oak Harbor, Whidbey Island, Wash. has been acquired by Los Angeles-based full-service real estate company New Standard Equities (NSE). The purchase price is $7.5 million.

To be rebranded Anchor Pointe Apartments, the 26-year-old, garden-style, two-story apartment community is cocooned amid groves of mature pine trees on a 5.15 acre site. Its apartments offer a mix of one-, two- and three-bedroom homes with one and two bathrooms. Many feature their own washer-dryers. There also exists parking for 165 vehicles on the property.

“It is rare to find a property in a very high demand location at over an eight percent cap rate on existing income,” Edward Ring, founder and CEO of NSE, told MHN. “The property is 100 percent full. In our opinion, the risk-versus-return measurement is significantly out of balance here. That is to say, we believe the returns are higher than the risk one would normally have to take to achieve those returns. The Pacific Northwest is an extraordinarily attractive market for us right now, and to find something in this general area at $106 per foot is simply incredible. If the property were closer to the Seattle MSA, we’d be looking at pricing that’s double that. In addition, this is an opportunity where we can create even more value through our renovation program, which aims to add amenities and improvements to the apartment homes themselves.”

NSE believes its cash-on-cash return will start in the 14 percent range, with an overall internal rate of return of approximately 24 percent on a five-year projected hold period, Ring added.

NSE plans to invest more than $1 million in capital improvements to the property. Among the enhancements will be the addition of a new fitness center, as well as a dedicated leasing office and business center.

Renovations to apartment homes, expected to take up to a year to complete, will yield revitalized kitchens with new cabinets, countertops and appliances. Where practical, washers and dryers will be added to those units lacking them. “Since this was an off-market purchase, there were no other bidders,” Ring said. “However, we carefully assessed the pros and cons. For this purchase, a major con is certainly the rather distant nature of Oak Harbor itself.”

That said, it’s only 37 miles from the Clinton Ferry station, which is only 20 minutes from Mukilteo, he added, noting the scenic drive makes the distance from greater Seattle feel much shorter.

“The property lacked a true leasing office and that’s another con,” Ring continued. “However, we’re curing that one with our capital improvement program. On the pro side, the unit mix is favorable for a strong military clientele with lots of one-bedroom, one-baths, and the twos have washer-dryer hook-ups. The location within Oak Harbor is strong, and the current position is similarly strong. It is one of the nicest communities on all of Whidbey Island.”

Anchor Pointe Apartments is close to Naval Air Station Whidbey Island, which was the recent beneficiary of a $49 million renovation project and is home to 19 active-duty and three ready-reserve squadrons. The apartment community is also conveniently located to public transportation, major highways and freeways.

The naval station is reflected in the new name of the community. Its adjacency to the property was also a major factor in NSE’s decision to purchase.

“The deal penciled well from the start, but we are factoring in some additional amenities which will push rents up a bit,” Ring said. “Our timing was amazing however, and we qualified for very attractive financing. That helped our numbers greatly. Our loan’s interest rate is starting out at around three percent.”

NSE is a very hands-on, responsible landlord, Ring said. The company prides itself in offering a great living experience to its residents, and believes the Anchor Pointe residents will similarly be pleased with the results.

“Because we are extremely respectful with regard to our residents’ willingness to pay for various improvements, we cautiously and methodically test our program before fully diving in,” Ring said.

“After all, the residents are the customers. If they appreciate what we offer, they’ll pay for our product. If not, they’ll vote with their feet.”