Park at Franklin Senior Living 28301 Franklin Rd

The Park at Franklin (“Park”) was originally constructed in 1977 as an assisted living facility with 346 units. With the recent transition to a 55+ community the total unit count has been reduced to 302 units due to 44 of the units being “hotel-style” and without kitchens. Under this new model Ownership deemed these units unrentable; however, 20 of these units are currently under a master lease with a post-hospitalization care provider. The remaining 24 units have been decommissioned, yet a new owner could easily retrofit them with kitchens and bring them back online.
As part of the transition to a 55+ community, all services, including food preparation and housekeeping have been outsourced to a third-party provider. This transition will greatly reduce operating expenses moving forward while at the same time maintaining these optional services for residents. All billing and administration of these services is handled by the third-party and requires no oversight from Ownership.
The same third-party provider of community services at Park is the aforementioned lessor of 20 of the 44 hotel-style units not included in the total unit count. Since these units have been removed from the total unit count the income generated from them is categorized under other income within this offering. Currently the master lease on these units amounts to $900 per unit per month, or $216K annually.
The unit mix at Park is comprised of one and two-bedroom units ranging from 550-1,100 SQFT. Current occupied rents average $1,105 and residents are charged an additional utility fee of $75 on one-bedroom units and $125 on two-bedroom units. The property is currently operating at 72% physical occupancy due to the transition and 25 down units that were caused by a roof leak (ten of which were previously upgraded). Outside of these down units, the property is in above average condition for its age; however, we have estimated $3M in capital improvements to address roofs, mechanicals, and the down units.
Ownership has renovated roughly 34 units at the property, installing new kitchens, bathrooms, flooring, and fixtures. These upgraded units command an average of $100 more in rent compared to standard units.
In our underwriting we assume that the 25 down units will also command a rent premium post remodeling. As it pertains to the 44 units without kitchens, we don’t budget any capital improvements to these units; however, a new owner could easily retrofit these units with kitchens in the future.
From an underwriting standpoint, IPO has adopted an extremely conservative approach when estimating rental rates and have set our rates below currently set market rents. It is our professional opinion that this will help facilitate a rapid lease-up through the rehabilitation and transition period.
For the acquisition and rehabilitation of Park, we assume interest-only bridge financing will be utilized at a 10% rate. This will result in carry-costs of roughly $350K in Y1; however, once stabilized and refinanced in year two, pre-tax cash-on-cash returns will reach 16%.
In a market devoid of value-add opportunities in quality locations, The Park at Franklin provides investors with a unique opportunity to achieve exceptional returns in one of Metro Detroit’s premier rental markets.
In a market devoid of value-add opportunities in quality locations, The Park at Franklin provides investors with a unique opportunity to achieve exceptional returns in one of Metro Detroit’s premier rental markets.