This property manager runs after 20% IRR… to South Dakota
Tzadik Properties, a Miami-based multi-family property management company, has embarked on a shopping spree – in South Dakota.
With just under $ 20 million, the company has created a portfolio of single-family homes, short-term rentals, multi-family complexes and a mobile home community. The company began buying in South Dakota in 2018 with 700 units in Sioux Falls. Today, it has 2,206 units in the state and is headquartered there with 35 employees.
Apartments at 210 St. Joseph St. in Rapid City, South Dakota
Tzadik was founded in 2007 and is active in around 20 states. Michael Davalos, Executive Vice President and Head of Acquisitions, said Bisnow via email that in 2018, he felt the company needed to prepare for an economic “merger”, not a collapse.
“A year later, our country was heading for a ‘merger’ or a sudden and unexpected price hike, even before the COVID-19 pandemic,” he wrote. “Knowing that our next recession would be very different from what we expected, my team and I worked on a plan to survive it.”
They looked at the 50 states for cities that had weathered the 2008-2010 downturn and came up with dream criteria: population growth, lack of supply, no overbuilding, low crime rate, 6% capitalization rate, and more, low vacancy rate, 20%. plus internal rates of return, market liquidity, favorable state taxes and governor’s stewardship. This led them to neglected hover states, where there was accelerated and steady growth despite small populations.
“While everyone focused on the primary and secondary markets, we focused on these quaternary markets,” Davalos said.
Sioux Falls and Rapid City recorded double-digit growth and remained stable throughout the 2008 crash. South Dakota had an unemployment rate of 3%, the lowest in the United States, and offered a style of outdoor living.
South Dakota has in recent decades become a haven for the rich because of some of its financial laws, Bloomberg reports. The state has no income tax, allows trusts to last forever, and has eliminated the interest rate cap on loans. As in other markets across the country, a real estate frenzy in South Dakota has driven high prices and put housing beyond the reach of working-class residents.
With the recently announced Black Hills Estates portfolio, Tzadik acquired four multi-family apartment complexes in Rapid City: 40 units at 210 St. Joseph St. for $ 1.74 million, the 17-unit Oxford Square complex for $ 1.029 million, the 30 Horizon Townhomes for $ 2.065 million and the Marquette Manor mobile home community of 47 lots and 4.72 acres for $ 1.4 million.
Tzadik also purchased the 78-unit Garden Villas complex in Sioux Falls for $ 9.5 million and four single-family homes and a short-term rental condominium in Custer, Rapid City, Sturgis and Lead.
Harrisburg, near Sioux Falls, has been the state’s fastest growing city in decades, and the town of Tea is right behind it with an 8% annual growth rate, according to US News & World Report. According to the mid-year report from Sioux Falls-based Bender Commercial Real Estate Services, 2021 has been a banner year for Sioux Falls, which has 190,583 residents (276,730, including surrounding communities).
The office market had a vacancy rate of 12.6%, with rents of $ 20 per square foot. For new Class A buildings, the demand was so high that a landlord redesigned their building to add additional floors for interested tenants. Retail had a vacancy rate of 13.7%, while the industrial market, comprising 28.5 million square feet spread over 1,368 properties, had a vacancy rate of 1.6%.
“The big winner in the construction game is the apartment market, which accounts for 23% of construction value, or more than $ 114 million,” the report said. “As of mid-2020, Sioux Falls had $ 286 million with just $ 27.5 million in the apartment market.”