March 2025: No Q1 Acquisitions (Yet), Cooper Bend Success, and Chateau Apartments Launch

With Q1 in the books, it has now been two whole quarters without a Matheson Capital acquisition. Despite the incredible success we had when we sold Cooper Bend in December, I can tell many of you are losing interest. This is the first time we've had this much of a dry spell since Q1 and Q2 of 2023 (we were actually under contract on Summers Run during both Q1 and Q2, but we didn't close until Q3).

So this update is going to be a little different, because instead of focusing on my incredibly insightful insights (I know it's redundant), I'm going to focus on three things: 1.) our general investment approach, 2.) our successful sale of Cooper Bend, and 3.) our current investment offering, Chateau Apartments!

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OUR INVESTMENT APPROACH

I'm sure many of you have read this before, so feel free to skip to the next section. But if you're new or just curious, please keep reading.

To put it simply, our approach revolves around three factors: 1.) cash flow, 2.) basis, and 3.) fixed rate debt. We want every acquisition we do to have all three of these factors, but if it doesn't, it should have at least two. Do these guarantee that every deal is a home run? No. But we think they go a long way to making for a good investment.

Why these factors? To put it simply, we think these factors provide investors with strong down downside protection (something that a lot of sponsors failed to do...), while also allowing for investors to capture strong upside returns.

At the risk of rambling, I'm going to use bullet points to state some of the reasons I like each of these factors:

1. Cash Flow
   1. It derisks a property by nature of having a higher DSCR
   2. It derisks returns by removing the necessity of appreciation
2. Low Basis
   1. Getting a good value is inherently good
   2. It derisks a property by reducing the overall investment (debt & equity)
   3. It insulates you from downturns (you don't want to buy a high basis and then see the market turn against you)
3. Fixed Rate Debt
   1. Debt is your biggest expense (not property taxes or payroll), so if you can remove variability, you massively derisk an investment
      • And in case you're new, we've been a fixed rate borrower since 2018, so we were doing it before everything was flipped upside-down!

RECENT CLOSING - RESIDENCES AT COOPER BEND

To address the question head on, Cooper Bend had both an incredibly low basis (we bought for $91k / door) and fixed rate debt. It did not cash flow because it was incredibly distressed when we bought it, and we told investors at the time not to expect cash flow. Now on to the story.

We purchased Cooper Bend in October of 2023 for just $91k / unit, which was $15k / unit less than the prior owner had paid for it, and $9k / unit less than the deal was marketed to us back in 2020. We made improvements to the property, and we successfully sold the property in December 2024 at a price of about $127k / unit. Over just 14 months, our LPs received an average IRR of 32% and an average return of 40%.

This was a big moment for us in many ways. For starters, it was our first sale since March of 2022, so getting another win for investors always feels good. But more importantly, it was our first sale of a property bought outside of the ZIRP period, when every real estate deal seemingly worked out.

If you didn't invest in this one but want to learn more, please reach out. We're happy to brag share.

CURRENT ACQUISITION - CHATEAU APARTMENTS

We were very excited to launch Chateau Apartments earlier this month. We've been overwhelmed by the interest in the project, and I feel confident in saying this has been our most in-demand project to date.

Our thesis is simple. The Triangle has some of the best demographics in the country, which is one of the reasons that so many institutional investors are targeting the market. However, unlike many parts of the Triangle, Chapel Hill and Carrboro have very high barriers to entry, artificially limiting new supply. These two factors alone create a great investment opportunity, but as Billy Mays (RIP) would say, "but wait, there's more!"

Even though the property is on the older side, we feel that we're buying it at a great cap rate. Additionally, we have the ability to significantly enhance NOI through the NC tax abatement program, allowing the property to deliver strong cash flow to investors. And yes, we like the basis (it's very expensive to build in Chapel Hill / Carrboro), and we'll be borrowing with fixed rate debt.

If you haven't looked at it already, you can view the deal room here, and if you'd like to discuss it further, you can schedule a call with me here.

I know this was a little different than what we've been doing but let me know what you think. Did you like it more? Like it less? We always appreciate the feedback.

As always, thanks for your support.

Thank you,

Will Matheson