Real Estate Acquisitions
Nelson Partners believes that well-positioned housing for students near campus can leverage the economic stability of a major university and cater to a demand with less volatility than the macro-economy. Our strategy is to target the well-located properties within walking distance to growing universities that fit within the company’s proprietary buying model. In particular, the company will emphasize value-added opportunities, targeting well-located properties that can be upgraded from extensive renovations with a more contemporary look and feel. The key will be to make cost-effective improvements that students could potentially be willing to pay a higher premium for; helping to raise rents, grow income and appreciate property value.
Our strategy is simple. We try to understand what investors are looking for and what they value most; then find opportunities that best align with those goals. It was this mindset that pointed us toward student housing.
We believe well-positioned student housing has the ability to offer a variety of benefits that matter to investors; monthly cash flow, stable performance, inflation-friendly, appreciation, tax efficiency through depreciation. All from a brick-and-mortar asset anchored by the historical stability of a university.
Nelson Partners typically divides investment opportunities into four categories, each with their own unique goals and objectives.
Nelson Partners often acquires newer assets that are believed to be stabilized and well-located in strong markets. For these properties, NelsonPartners typically employs a more conservative buy and hold strategy – where the property is held for a 5 – 6 year period. These assets are 1031 and IRA eligible.
Often, Nelson Partners will come across older properties believed to have a fantastic location with an excellent track record of high occupancy but may not be in the best or the most competitive condition. Our plan for these assets is to devise a strategy to grow rents and increase property value by enhancing the appeal of the property through strategic upgrades, renovations and amenity improvements. These opportunities are typically 1031 and IRA eligible.
Nelson Partners believes that increased diversification can help with capital preservation and safety. With this in mind, NelsonPartners created an LLC that owns smaller interests in various NelsonPartners properties. Investors can buy shares of the LLC and have direct ownership benefits of a more diversified portfolio. The LLC is IRA eligible but not eligible for 1031 exchanges.
Every now and again, Nelson Partners will encounter a dilapidated property or a vacant plot of land with an ideal location near a growing university. For Nelson Partners, this can translate into tremendous upside potential through an all-new, ground-up development. Especially in markets where demand is growing faster than supply and the current competitive set is antiquated or lacks modern appeal to today’s pickier students. In this case, Nelson Partners believes a well-executed strategy can potentially bring high returns. Keeping in mind, construction projects inherently bring on a number of risks and uncertainties. For these opportunities, investors should be sure the risks and benefits of a project are consistent with their goals and objectives.
Our strategy is to be disciplined in assets that fit a carefully crafted set
of criteria that can potentially help deliver on these benefits.
We look for universities that have shown consistently inclining enrollment, even during times of recession or a struggling real estate cycle.
Properties are acquired based on the net operating income in relation to the sales price. Inherently, most of the properties we buy are already profitable and producing income each month. From there, our goal is to maintain high occupancy to preserve the cash flow and do all we can to potentially increase the income through rental rate growth, efficiency operations, etc.
With each property, we see an opportunity to potentially grow income and add value. This may be through steady rental growth in a tight market where demand is growing but supply is limited. Or, it may be a more assertive strategy where we’re initiating substantial renovations to upgrade and modernize a property.
We like properties that have demonstrated a track record of consistently high occupancy in markets where there nearest competitors have also performed well historically. Further, we try to single out properties that we feel have a sustainable competitive advantage (such as a location within walking distance to campus) that may be difficult to replicate. That way, we think the property can maintain steady performance.
A dollar saved can be a dollar earned. Real estate is unique in that it may be one of the few assets that tend to appreciate over time but that the IRS will allow depreciation to write off the usage of the property. We tend to favor property with lower land costs, written off at the 27.5 year schedule allotted by the IRS. For most of our current properties, this practice has enabled us to shelter up to 100% of the income on the majority of our assets. It’s a huge benefit. Oft-overlooked.
5 KEY STRATEGIC OBJECTIVES
Nelson Partners targets opportunities that can potentially
offer a balance of multiple key benefits
Monthly Cash Flow
Nelson Partners typically targets properties for investment that boast a track record of high occupancy and monthly cash flow – even during recession. The goal is to provide investments that can pay a compelling pass-through income to investors each month. It’s up to investors whether they receive it by direct deposit or hard copy check.
Annual income estimates will vary based on multiple factors but typical Nelson Brothers offerings target cash flow ranges from 6% to 7.5% annual income.
Nelson Partners’ philosophy is that a dollar saved is a dollar earned. Real estate may be one of the only investment assets that tends to appreciate over time while the IRS allows you to write off the wear-and-tear usage of the property; expenses that are typically factored in already.
Historically, it has been very common for Nelson Partners assets to shelter greater than 100% of the distributed income. In fact, in 2015, Nelson Partners sheltered over 100% on 22 of our 23 properties. There are 3 critical factors that helped make this happen.
First, land cannot be depreciated. So investments in areas where land is sold at a premium such as California or New York, the amount of the investment that is depreciable is low. However, in college markets such as Provo, UT, South Bend, IN, etc. land values tend to be significantly smaller. Second, multi-unit housing is written off at a 27.5 year schedule. This gets much more favorable tax treatment than retail or office properties that are scheduled over a 39 year period. Third, Nelson Brothers properties tend to have higher leverage ranging from 50% to 65% loan-to-value. With more leverage, there is a higher ratio of depreciable property vs. equity invested.
Nelson Partners primary goal is to preserve invested capital. Our strategy to deliver on this is to focus on brick-and-mortar investments with strong track records of profitability and high occupancy, in markets where the nearest competitors boast similarly high occupancy – all anchored by the historical stability of a major university and the potential for constant demand for housing that seems to have minimal correlation to the economy, to market fluctuations or to real estate cycles. Nelson Partners also emphasizes properties we believe to have irreplaceable locations and/or other sustainable competitive advantages that may be difficult for current or future competition to replicate
Nelson Partners targets assets that can also appreciate in value over time. Typically, NelsonPartners favors properties where college enrollment (demand) is expected to grow over time in tight markets where there may be barriers to entry or limited supply growth. Nelson Partners goal with each property is to potentially grow rental rates at a far faster pace than expense rate growth; leading to improved cash flow and increased net operating income. Often, Nelson Partners will acquire older, run down assets that may boast a terrific location and an excellent track record but may benefit tremendously from property upgrades, new amenities and a more contemporary look. The goal would be to deploy money carefully and in areas where student tenants would be willing to pay a higher premium. A well-executed strategy can help grow rents, improve tenant quality and increase property value in a relatively short period of time.
Specialized focus on student and elderly communities
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A team committed to excellence
Offering every convenience needed for tenants to succeed
Influencing communities to give tenants the best experience possible
16-B Journey Suite 200
Aliso Viejo, CA 92656