65-Units Single Family Community in Greenville

A 65-unit single-family residential community to be developed across 13.17 net acres following Phase 1 drainage infrastructure improvements on the full 17.67-acre site. Each home will feature a private garden, dedicated parking, and full family-oriented amenities consistent with traditional American residential standards. The development prioritizes low-density, owner-quality living in a growing suburban corridor of Hunt County, directly adjacent to established multifamily housing at The Ridge Apartments.

Financial Breakdown:  

We deem to divest our shareholding at an Equity Hurdle rate of 0.94%.

The project generates $2.25 of present value for every $1.00 of equity invested, after already compensating the LPs at 0.94% per year (Equity Hurdle Rate) for 7 years. To potential new co-owners buying shares, the hurdle rate is the discount rate that determines the share price they are paying. If they buy a share at $173K, they are paying a price that delivers exactly 0.94% annually on their investment. At the end of the 7th year, their equity value should reach $424K, thus multiplying their investment by 2.45X.

The mortgage rate (7.5%) exceeds the exit cap rate (5%), meaning we are in negative leverage territory. The asset's unlevered yield is lower than the cost of borrowing. This means leverage is mathematically diluting the unlevered return, yet the levered IRR is still 23.62%, which means the project's capital appreciation and NOI growth are compensating for the negative leverage effect. Secondly, the hurdle rate of 0.94% sits only 70 basis points above the mortgage rate. This is a very narrow spread and arguably under-prices the equity risk relative to the debt risk. Conventionally, equity should demand at least 300 to 500 basis points above the mortgage rate, which would put our hurdle at 10.50% to 12.50%. The fact that our hurdle is only 0.94% means your LPs are accepting much below-market risk compensation, which benefits the deal's NPV optics.

Thirdly, the unlevered IRR of 12.35% comfortably exceeds the mortgage rate of 7.50%, producing a positive debt yield spread of 4.85%. On the other hand, the levered IRR is 22.67% above the hurdle, thus the α is very strong. This is the number our financing bank will focus on, and it is healthy.