Business Plan

Darcorp - Investment Strategy

Darcorp is actively involved in the acquisition, asset management, renovation, repositioning and disposition of “value add” apartment assets. Value add apartment assets are characterized by underperforming income-producing properties due to a variety of causes. Its primary investment strategy is to purchase a subject property at a discount and then expeditiously resolve problem issues with the purpose of increasing net cash flow and in turn increasing the market value to the subject property.

Darcorp focuses on properties that have been mismanaged or have deferred maintenance; that are in receivership or have been foreclosed upon; have lower than market occupancy; or need to be recapitalized. Such properties offer the ability to increase cash flow and equity through renovation and professional management. In order to bring rental rates to market rates and stabilize the occupancy, properties are renovated within the first 6 months of the acquisition, problem tenants are evicted, the qualification standards are raised for all residents, and an aggressive leasing program is implemented. Following project stabilization, the objective is to have the property refinanced, enabling investors to recoup a portion of their initial investment.

Darcorp is structured to be highly opportunistic as it competes for distressed or under performing opportunities in the multi-family market. Its long standing bank and broker relationships offer it access to opportunities before they are offered to the overall market.

Since 1990, Darcorp has acquired, renovated, repositioned, and managed over 6,000 apartment units in Texas, Arizona, Colorado, and Washington. Darcorp is currently acquiring properties in the Dallas-Fort Worth market, the fourth largest Metropolitan Service Area (“MSA”) in the country, with plans to expand into other top twenty MSAs.

Darcorp - Strategic Property Focus

Darcorp’s strategy involves focusing on the following property characteristics:

• Property Type – existing Class A, B, and C garden style apartments.
• Property Characteristics – underperforming occupancy (below 90%); moderate deferred maintenance (less than 40% of acquisition cost); and refinance opportunity.
• Target Size – communities of 100+ units; historical average community size is 240+ units.
• Markets – top 20 MSAs.
• Expected Holding Period – asset specific.

Darcorp - Rationale for Investment in Value Add Properties

• In these difficult economic times, highly leveraged multi-family properties have mortgage notes that are coming due and owners are not able to refinance these properties. Without available financing, owners are being forced to sell. Refinancing is particularly difficult when the properties are underperforming.
• A typical method assessing the value of a multi-family property is with an “Income Approach.” Assets are valued by a multiple of their net operating income (“NOI”). When a property’s NOI is underperforming, this has a direct impact on reducing the value of the property. If NOI were to be improved through proper stabilization, an immediate increase in equity could be gained.
• Many underperforming properties are a result of poor management of the property without clear policies and procedures allowing for unqualified tenants, lenient enforcement of rules, and lost rental income. An attentive management team with a goal oriented leasing and marketing strategy can improve the occupancy and increase the long term stability of a property.
• Underperforming properties can be the product of neglected maintenance resulting in below market rates. Following property renovation, rents may be raised to market rates, which results in an increase to the NOI.
• In the current market, the buyer pool is limited due to lack of available credit, which is causing sellers to further discount values.
• The Texas employment and economy are outperforming the rest of the nation.
• Investing in multi-family properties can be a hedge against inflation.
• Rental rates adjust upward with inflation in most cases.
• Borrowing at fixed rates can work as a hedge against inflation.
• Tax benefits may be available for the income earned from owning apartments and deductions for depreciation and expenses may be beneficial in shielding income from FICA taxes and deferment of capital gains taxes. Prospective investors are urged to consult their own respective tax advisors with respect to their own respective tax situations and the effects of this investment thereon.
• Due to the tight availability of credit, a large number of distressed properties, and a lack of qualified buyers, it is the opinion of Darcorp that a window of opportunity exists and that now is the time to buy value add multi-family properties.