Case Study in Preservation: Cabana Club Apartments
In July 2017, the Enterprise Multifamily Opportunity Fund II, LLC (Opportunity Fund II) partnered with Lincoln Avenue Capital (LAC), an established for-profit developer of affordable housing, to purchase Cabana Club Apartments. The property provides 332 homes for seniors in Cutler Bay, Florida, in Miami-Dade County.
Cabana Club was originally constructed in 1969 and repositioned as affordable rental apartments in 1996 using Low-Income Housing Tax Credit (LIHTC) financing. At the time of acquisition, the property was five years beyond the initial 15-year LIHTC compliance period but subject to a LIHTC extended use agreement until 2026 that restricted 8 percent of the apartments to 50 percent of area median income (AMI) or below and the remainder at 60 percent AMI or below.
The property has attractive amenities featuring a large outdoor swimming pool with concrete sundeck, elevator access, gated entrance and security cameras, and a 5,000-square-foot community building that provides tenants access to a fitness center, a library and a clubhouse. At acquisition, the subject was in fair condition and benefited from steady operations and low tenant turnover.
The investment involved a partnership with Affordable Housing Institute (AHI), which allowed the property to secure an as-of-right partial real estate tax exemption that did not previously exist. The tax exemption was key to the investment strategy and was distinct to ownership by a nonprofit organization, AHI, and meeting certain senior age and household income criteria. The business plan also involved addressing deferred maintenance, completing a green retrofit with water efficient bathroom fixtures, and positioning the subject for a tax credit re-syndication after three to four years.
During the hold period, Cabana Club suffered physical and financial hardship due to the devastating effect of Hurricane Irma in September 2017. Leading up to the storm and for weeks after, Lincoln Avenue Capital, and the third-party property management company worked with residents to ensure they were safe, had food and water, had transportation if needed, and were receiving regular wellness checks.
Eventually the building was stabilized, and ownership received approximately a $5 million insurance claim to repair the property. This work was completed over the next year-and-a-half and after two years resumed normalized operational and financial performance. After three years of ownership, LAC successfully secured 4% LIHTC and tax-exempt bond financing. The partners agreed to a sale in early 2020 to allow the property to be recapitalized. In April 2020, the sale to the new LIHTC partnership sponsored by LAC was completed and Enterprise’s interest was fully redeemed. In addition to generating strong financial returns on the Opportunity Fund II’s investment, this recapitalization will extend the restricted affordability for another 30-years and dramatically improve the physical condition of the building.