Investment strategy
Morongell Capital's core mission of protecting our investment partners’ capital begins with our sole focus on multifamily properties. The firm’s strategy focuses on improving Class B & C apartment communities in secondary and tertiary markets nationwide. Historically, multifamily has been the least volatile real estate asset class during downturns while still offering strong upside potential during upcycles. Within multifamily, Class B & C provides one of the most attractive investment opportunities due to the imbalance between the strong and growing demand and limited new supply of these units.
Acquisition Criteria
The following criteria is used to identify undervalued multifamily properties for acquisition, value optimizations, management and disposition.
Market Segments
- Age: The 18-35 year old market segment is 22% of the U.S. population
- Income: Renters who earn $40,000 or more annually
- Price: Where rent is 30% or less of the median income
- Retiring Baby Boomers are scaling down and enjoying maintenance free multifamily living
Property Criteria
- Multifamily residential apartments
- Pitched roof construction preferred
- Occupancy above 80% with the exception of properties that require renovation, providing properties are well located and present value-add opportunities
target values
- Size and Price: 50+ units in the $4MM - $50MM range
- Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage ratio of 1.25
- Type: C- to B+ properties located in C- to A areas
- Property Vintage: 1975 or newer
- Location: Emerging market areas with indicators for strong near and long-term economic growth
Emerging Markets
Choosing the “right” multi-family apartment complex to acquire is a critical aspect of Morongell Capital, LLC’s investment strategy. We are diligent in our exploration and focus on opportunities in emerging markets, where jobs and local economies are expanding.
EMerging markets are characterized by
- People moving in, rather than leaving the area
- Jobs being creating and moving in rather than lost
- Rents and property values rising
- Local government dedicated to attracting jobs
- Markets starting to absorb oversupply
There are many indicators and a lot of research that goes into identifying an emerging market in the US. We start out by performing thorough market research that includes the following areas:
- Job Growth Report
- Population Growth
- Path of Progress Reports
- Local Economic Reports & Trends
- Chamber of Commerce Reports
Acquisition Practices
Morongell Capital, LLC takes pride in building relationships with local listing brokers to get their “pocket listings” and access to other Bank Owned Properties (REO). Our searches include soliciting owners directly instead of waiting for properties to come to market.
Each asset undergoes a thorough due diligence process to confirm the physical and legal status of the property and to confirm valuations to ensure achievable investment strategies.
Early in the asset evaluation phase, the debt and equity financing strategy is developed based on a number of factors such as property type, magnitude of renovations, expected hold period and investor objectives. Each asset is typically held 5-10 years depending on its exact business plan.
investment discipline
Asset selection involves a systematic, routine evaluation to identify favorable demand characteristics, i.e., job and population growth, demographic shifts, supply absorption rates and positive local legislation.
Markets with supply constraints receive most favorable underwriting. Markets with signs of oversupply such as surplus land, changes in zoning and increases in building permits are avoided.
Value-Add Strategy
Think of it as a business rather than a building. The more income it generates, the more it is worth. When we purchase an apartment complex, we are looking for specific opportunities to increase the cashflow in different areas. These are called “Value Plays” or “Value Adding Components”.
Value plays we capitalize on
- Mismanagement cause by owner self-managing
- Poor supervision of management companies
- Deferred maintenance
- High vacancies
- Below market rents
Some examples of value-add plays we implement at Morongell Capital, LLC:
- Improve curb appeal by improving landscaping, adding dog parks, carports, etc. Residents will pay more when a property is in better condition and has amenities.
- Purchasing a property that is 10% or more under current market rents. This gives us the opportunity to increase rents and immediately increase the value of the property.
- Implement a water and sewage bill-back system to charge the residents for actual usage. Most apartment owners pay for all the water. When we bill back the residents it helps offset expenses and increase the cash flow. Through this system residents tend to become more frugal and will decrease overall operating expenses.
- Improve unit interiors with new paint, appliances, countertops, and floors
- Adding a coin laundry facility to the complex
- Below market rents
Path of Progress Strategy
A Path of Progress is where the greatest amount of building and development is currently happening, or soon to be.
a path of progress is where:
- Properties rapidly shoot up in appreciation
- Majority of new construction is going on
- Families and individuals are moving into the area
Investing in the Path of Progress yields the greatest returns in a short period of time.
Multi-family real estate investments
Enjoy passive real estate income without the hassle of management.
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