LOCATION:
The City of Battle Creek is located in northwest Calhoun County, at the confluence of the Kalamazoo and Battle Creek Rivers. It is the principal city of the Battle Creek Metropolitan Statistical Area (MSA), which encompasses all of Calhoun County. As of the 2016 census estimate, the city had a total population of 51,534, while the MSA as a whole was 136,146 (as of 2010). The median family income was most recently reported at $36,882. Battle Creek is the 3rd largest city in Michigan by land mass, and is a progressive and dynamic community with a focus on family-orientation and community themes like sports and recreation. This community is very well located, situated directly along I-94, midway between Detroit (113 miles) and Chicago (170 miles), just south of the state capital, Lansing (39 miles), and neighboring Kalamazoo to the west (25 miles). There are outstanding transportation features in this area, for both road, rail and air: major interstates and highways servicing the area include I-94 (east to West), I-69 (north to south), M-66, M-99, M-78 and M-60 and over 40 Freight Truckling lines; Battle Creek Transit and Greyhound offer local and long-distance busing options; CN Northern American Railroad and Amtrak (downtown Battle Creek station) provide passenger and freight railway service; air transport and travel are provided by one of 3 airports in Battle Creek.
Battle Creek is known as “Cereal City”, and is home to the world headquarters of Kellogg Company, which was founded here in 1906. It is also the founding location of Post Cereals, which is now Post Foods, and the Ralston Foods cereal factory owned by Ralcorp. Other major employers in the area include: Battle Creek Health System, Denso Manufacturing, Hart-Dole-Inouye Federal Center, Battle Creek Public Schools, Veterans Affairs Medical Center, Kraft Foods, Inc. and Stanley. Aside from the significant presence of corporate food science industry giants such as Kellogg’s, the local economy has an aviation and aerospace component, with Kalamazoo/Battle Creek International Airport, Ft. Custer Army National Guard Base and W.K. Kellogg Airport, servicing both civilian and military air travel/transport needs, with Duncan Aviation and Western Michigan University’s Aviation School located at the W.K. Kellogg facility. A massive Industrial Park was developed at the Ft. Custer base, the Ft. Custer Industrial Park, a 3,000-acre hub which is home to over 90 businesses, and is strategically located for logistics and distribution industries due to the abundance of transportation assets in the Battle Creek area. There is an international business scene and well-diversified economy in Battle Creek.
PROPERTY:
Bailey Park is a combination garden and townhome-style complex built in 1966. The buildings contain a diverse mix of 18 studios (500-650 ft.2), 173 one-bedrooms (700 ft.2), 64 two-bedrooms (800-850 ft.2), 1 one-bedroom townhome (1,225 ft.2), 6 two-bedroom townhomes (1,325 ft.2), and 5 enormous three-bedroom townhomes (1,400 ft.2). Notable for investors is the occupancy, which is currently at 91% and trending upwards with considerable leasing activity being generated in the last few months. Strong occupancy such as this is mainly because Bailey Park’s exceptional condition that is the result of the current owner’s extensive rehabilitation of the property over the course of the last few years. In total nearly $4M has been spent on capital improvements that have included the upgrade of over 100 units, new windows, roofs, paint, landscape and clubhouse. In addition to over 100-units being upgraded, the clubhouse has been revamped on a level consistent with new-build properties.
Outside of Bailey Park’s excellent location the property also offers residents numerous amenities such as: a fully staffed clubhouse and leasing office, on-site laundry, a swimming pool, sand volleyball courts, a playground, and a linear path for biking and walking. Notable for investors is the utility configuration of Bailey Park which is outfitted with tenant-paid, gas-forced air furnaces and separately metered electricity. With respect to water this utility is master metered; however, ownership implemented a water reimbursement program in August of 2016 whereby residents are charged a fixed per-month water charge dependent on their unit type. This charge starts off at $15 per month for studios and increases $5 with each additional bedroom. In the case of the townhome units this charge starts at $25 for the one-bedroom unit and increases to $35 for the three-bedroom units. As previously indicated, this program was initiated in August of 2016 and due to the lease-cycle nature of multifamily assets is not fully implemented. Per a detailed review of the Rent Roll it appears that approximately 193, or 79% of the 244 occupied units are currently on this program. This bodes well for a new owner since when this program reaches 100% of occupied units it will absorb approximately 75% of the annual water bill.
FINANCIAL:
IPO has underwritten Bailey Park utilizing a combination of actual average rents, current vacancy/bad debt trends and year-to-date operating expenses. Based on these assumptions, IPO has conservatively estimated yearly expenses of $4,084 per unit, which when combined with average rental rates and projected vacancy and bad debt factors produces a yearly NOI of approximately $839K. It is important to point out that we have made no upward adjustment to the existing rental rates, which we have determined to be below market (see rental comparison study on page 18). It is our professional opinion that a new owner could easily increase existing rents on studio and one-bedroom units by $20 without seeing any pressure on occupancy. With a modest rental rate increase such as this a new owner could easily propel the NOI to over $900K and add nearly $900K in value with no financial investment. Bailey Park is being offered to the market as an unpriced new debt opportunity, allowing for an operator to lock in a 10-year deal before the all-time low interest rates begin to rise.
