The Paceline Parable
Paceline Apartments came on-line in December of 2018 in the heart of Shoreline, WA. The project consisted of 221 apartment homes spread out in two mid-rise buildings situated on 1.4 acres with 145,000 square feet of rentable space. Edison47 was brought in after the previous property management team was dismissed from the project. Though already under construction, the Edison47 team was asked to consult on the finishes, planned amenity spaces, interior design elements, pricing and leasing expectations, this performance ultimately resulted in Edison47 taking over management of Paceline.
The lease-up was delivered in a very soft market as the holiday season was in full-swing. As the season progressed the pace quickened in early spring and by the end of the summer 2019, the asset had reached stabilized occupancy. This property continued to perform above initial projections leading to a 9 cent gain above the $/SF underwriting assumptions, the resulting gain of $190K in total revenue was due to increased leasing velocity, a continued focus on increasing sustainable market rents, maximizing ancillary income opportunities and smart money management; the results of which totaled a net savings to operating costs of $2,100 per unit less annually than originally predicted in the proforma.
Against All Odds
The asset continued to operate as normal for the next few months until the COVID pandemic hit in March of 2020. As with so many regions in the country, the industry in Shoreline, Washington consists of a mixture of blue and white-collar industries; additionally, several large academic institutions call the area home. The pandemic partially shuttered most businesses for the remainder of the year with only a few staying afloat. Many of the local colleges serve a substantial population of international students. These unfortunate circumstances took a toll on Paceline students, when these schools closed, life changed overnight for these students. Student loan payments were halted, and an impending travel restriction loomed large. The international students that called Paceline home faced an uncertain future. Without the possibility of finding work to supplement their rental payments, wire transactions between banking institutions both domestic and international ceased and more importantly, students were cut off from their family and loved ones. These unfortunate circumstances took a toll on Paceline.
By the end of 2020 Paceline was struggling with a combination of 7% occupancy drop and a revolving monthly delinquency of $95K. Paceline endured 149 move-outs in 10 months with 131 move-ins and an unprecedented 19% renewal rate.
The Shoreline market was experiencing a mass exodus as people were desperately trying to find their new path in an uncertain world. The use of concessions and new SOP’s throughout the property management industry were utilized during this period in an attempt to gain or save any lease. By September of 2021, PAceline occupancy had rebounded to 95% occupancy and lowered the turn-over rate to 44%. Delinquency was ever present, the responsibility to chase payments, create payment arrangements and work with our residents fell to our operations team. The growing mass of laws enacted at the time prohibited eviction or collection. The team focused energy on daily follow up with all delinquent residents, in addition to facilitating and initiating the communications between residents and the various charitable organizations willing to provide rental assistance. At the close of 2021, Paceline was able to reduce the outstanding current reticent debt by $60K and obtain an additional $178,000 from the Landlord Mitigation Fund. After weathering these challenges, Paceline was listed for sale by the ownership.
By February of 2022, the community continued to maintain its positive leasing trend, achieving 97.6% physical occupancy while continuing to decrease COVID related bad debt.
Upon the sale of the community, the ownership nearly doubled the amount of funds that went into constructions of this large asset while exceeding the promised returns to all investors.
The Paceline community was by far one of the most difficult challenges we have faced to date.
Truly the definition of a success story; one not only benefiting the owners and investors, but also the residents that called the property home during Edison47’s management.
Tom Dodson | Sr. Portfolio Manager
7 Years with E47 | 17 Years Experience