Case Studies

Weatherstone Apartments

Before

After

Aurora, CO

Mark-up-to-Market Property

The sale of the Weatherstone Apartments illustrates a key example of how Steele Properties created a win-win solution for a seemingly impossible transaction and successfully completed a HUD mark-up-to-market program. Weatherstone is a 204-unit Section 8 family property located in Aurora, Colorado. At the time of sale, Weatherstone was in poor repair and the seller, hoping to profit from the transaction, was asking a price much greater than the value of the property. As the developer, Steele Properties had a problem: how to increase the value of the property for the buyer, thus allowing for a feasible transaction.

In response the principals of Steele devised a viable resolution whereby the property would go through HUD’s mark-up-to-market program. In the mark-up-to-market program, HUD evaluates the rents on a specific Section 8 property as compared to those of similar complexes in the same area. If the HUD evaluation finds that the properties’ rents are undervalued, the property owner may “mark up” the rents of the Section 8 property so that the prices are equal to those of its neighbors. This method allows the property owner to better financially support the property and necessary upkeep. In the case of Weatherstone, the property required several million dollars worth of repairs and upgrades before it would be worthy of increased rents. However, a moderate rehab would qualify the property for the mark-up-to-market program and thus increase the overall value of the property by about $12 million dollars. Realizing the long term financial benefit of a mark-up-to-market program, Steele Properties completed the transaction with the seller for the asking price and then proceeded to work with HUD on rehabilitation plans which would allow for higher rents.

Once the purchase was complete, Steele oversaw $3 million in rehabilitations to the Weatherstone complex. The rehab plan allowed for $2.5 million in upgrades and replacements within each unit including new kitchens, bathrooms, appliances, and flooring, and another $1 million in exterior improvements including new playgrounds, landscaping, and windows. The Weatherstone deal was beneficial for both buyer and seller, but more importantly the residents benefited from the rehab which greatly improved the quality of their living spaces. Having completed the mark-up-to-market program, the Weatherstone Apartments are able to retain their affordability and provide a clean, decent, affordable living option to the Aurora Community.

To date, Steele Properties has completed four mark-up-to-market transactions; all of which have been very successful.