The Heritage at Old Town

Investment Highlights

Project Sponsor Priderock Capital Partners, LLC

Closing Date September 2009

Project Highlights

Submarket Old Town, Alexandria, VA

Units 244

Pre-Acquisition

Heritage Boca Current Status

Post-Renovation

Investment Strategy

Acquire an extremely well located apartment community in the heart of Old Town Alexandria at a significant discount to replacement cost.
Execute Value-Add Program:
- Institute proactive tenant relations and leasing programs.
- Mark-up to Market of the Section 8 Housing Assistance Payment contracts. HAP contracts can be updated once every 5 years to align contract rents with rents of comparable unassisted properties.
- Increase payment rates for Portable Housing Choice Voucher residents to the maximum allowable rates as set by Alexandria Redevelopment and Housing Authority (ARHA).
- Implement an exterior renovation program that includes converting the security office into a new leasing concierge and manager’s office, converting the trash room into an attractive leasing and seating area, converting the first floor storage room into a community room and cyber cafe, converting the fifth floor laundry room into a fitness center, updating hallways in the midrise with new carpeting and wall lights, creating a dog park and improving the landscaping and curb appeal of the property.
- Implement comprehensive deferred maintenance program.

Current Status

Completed the deferred maintenance program and common area upgrade program ahead of schedule and under budget.
Increased annualized NOI by approximately 39% from August of 2009 to October of 2010.[1]
- Maximized voucher payments from the ARHA. Prior to Priderock's acquisition, the in-place voucher payments for 2009 were set to prior year payment levels. Through thorough due diligence and discussions with ARHA, Priderock uncovered the error and was able to re-establish the correct 2009 rates. Since takeover, Priderock achieved an increase in the ARHA payment levels for 2010 of 13% for the one bedrooms and 15% for the two bedrooms. These increases were generated through two mechanisms: 1) ARHA agreed to pay 110% of fair market rent for 2010 and 2) fair market rent increased from 2009 to 2010. ARHA agreed to the increased payment percentage based on the quality of the project and the renovation program and based on Priderock's proactive relationship building with their tenants and the officials within the ARHA organization. The year over year growth was anticipated based on Priderock's due diligence of historical ARHA rent increases prior to acquisition.
- Priderock is in the final stages of the HUD mark up to market process for the two project based HAP contracts. HUD has approved a 24% increase in contract rents. Priderock commissioned a HUD rent comparability report during due diligence to gauge the level the rents would increase to based on the Mark-up to Market process on an as-is basis and an as-renovated basis. The ultimate results were slightly higher than anticipated due to the tightening of the Alexandria rental market.
- To fill vacancies, the prior ownership rented to conventional, unassisted tenants at significantly discounted rental rates. The prior ownership managed the project as fully subsidized and did not have a true leasing function. Priderock's development of a leasing program, along with a positive customer service reputation and creative renovation program has led to conventional units renting at unassisted market rate levels.

[1] August 2009 net operating income has been adjusted to account for market rate management fees, normalized annual taxes and utility bills. October 2010 net operating income includes the income from the recently approved increase in HAP contract rents.

Deal Risk	Risk Mitigation
Renovation Cost Overrun	Conducted extensive due diligence with in-house resources, third party consultants and contractors.
Pro-Forma Operating Projections	Extensive local market knowledge (Priderock principals own and operate competitive properties in the immediate market). Extensive use of third-party research (REIS, Axiometrics, Delta, local and national brokers). Internal detailed market survey updated periodically during transaction execution. HUD determines the Mark-Up-To Market rents for an asset based on a rent comparability study. Prior to the acquisition of the property, Priderock engaged Novogradac & Co. to perform a rent comparability study for the property based on HUD guidelines. Novogradac & Co. has extensive experience working for HUD executing comparability studies. The analysis was prepared on an as-is basis and as renovated basis.
Legal/Land Use	Engaged premier HUD counsel and local counsel to vet project based HAP contracts and issues associated with ARHA vouchers and the redevelopment program. Worked with local community leaders, lenders and HUD to analyze the various strategies for the project.


Midrise entry door was located next to trash room shown here to the left	The old midrise entry point was tired, with concrete paving and concrete benches	The midrise lobby was narrow, old, and non-descript

The only sunlight came from the front door	A common room was taken from the residents by the previous owners and made into storage with old appliances and supplies	Midrise Elevators had minimal functionality and appeal


Property Entrance	Planter with flowers and window replace trash room fence and aluminum doors as you enter the midrise	The old structurally failing benches were replaced by new brick architectural monuments, and the concrete walkway was replaced with attractive pavers in a herring bone pattern

A new concierge desk to greet and assist residents and prospective residents	The attractive seating area above was once the old trash room	New community room and Manager's office

Business Center w/Internet Access	New Fitness Center	New Dog Park