AS SEEN IN UNITS MAGAZINE: WATERGATE VILLAGE, ANNAPOLIS, MD
A major renovation and repositioning project can present many new challenges that bring their own excitement to the overall process. Castle Lanterra Properties (CLP), well-known for its value-add investment strategy in multifamily properties, recently acquired Watergate Village—the only apartment property on the waterfront in Annapolis, Md.
In fact, with a 163-slip marina as part of the property—a rarity in an apartment community—it’s the only rental community in Annapolis to provide such a benefit to its residents.
CLP purchased the 608-unit multifamily property on a 31-acre peninsula for $105 million in early 2015 after a challenging and competitive process.
“We are continually focused on acquiring well-located properties that have intrinsic value that we can unlock,” says Elie Rieder, Founder and CEO, CLP. “This property is all about location—the location is irreplaceable. Being the only such property in the state capital city, the offering attracted considerable interest.”
The property is just a 15-minute walk from downtown Annapolis.
“That’s really what intrigued us, and now we’re looking to improve on it,” says Benjamin Loney, Head of Acquisitions, CLP.
Austin Alexander, Managing Director at CLP, says, “As is our ongoing strategy with any acquisition, we were able to do a lot of research up-front on this property. This strategy was essential to CLP’s restoration of the 45-unit, fire-damaged building at Watergate Village. We spent time and resources researching the exact requirement for renovating the vacant building.”
CLP’s due diligence included meeting with the City of Annapolis’ planning committee and the local community to understand their vision of the end product, meeting with the fire marshal to understand upgrades for current life safety requirements and engaging fire restoration specialists to evaluate the required scope of work and provide bids for the restoration.
As an acquisition in CLP’s portfolio, Watergate Village is unique as a value-add opportunity. For one, it includes a 45- unit building damaged by fire in 2013, with all units off-line since that occurrence. Second, it was originally constructed in 1968, and while substantial capital improvements have been made during the past 15 years—including the addition of a clubhouse in 2004—considerably more needs to be done.
Third, operating a marina is very different from operating a rental community and requires a different skill set. CLP was faced with challenges such as the need for specialized maintenance skills unique to addressing marina repairs, providing amenities targeted to boat owners such as laundry and wash facilities for transient boat dockers, the rental seasonality of the marina and marketing these efforts toward boat owners.
To address these challenges, CLP added to the property payroll a 30-year marina operator veteran, who is not only familiar with the operational aspect, but is well known in the Annapolis market and has the ability to leverage his relationships to the property’s advantage.
Finally, the City of Annapolis is restrictive with regard to new construction and renovation. Ultimately, the acquisition required a considerable amount of research by CLP’s team to determine what upgrades are required at Watergate Village to position it as one of the leading rental properties in Annapolis and a destination for apartment seekers.
Renovations and Then Some
Restoration of the fire-damaged building and upgrades to other units throughout the property will focus on adding luxury level interior renovations.
CLP has earmarked $12 million for capital improvements to the property. CLP has embarked on a $3 million renovation of the fire-damaged building, bringing the 45 units back online, which will increase the property’s income stream. Work is underway, and a new roof has already been installed.
CLP allocated $5 million to unit renovations. Rieder expects work to be completed and the building to be brought back online in the first half of 2016.
“All units in the building will be renovated to luxury standards, and all damage will be repaired, including upgrading and modernizing the hallways and lobby,” says Rieder.
New units will boast new hardwood flooring and modern lighting fixtures. Kitchens will receive new flat panel cabinets, high-end quartz counters, new appliances and a kitchen island. New windows and balcony railings will be added to water-front units. Units will also be modernized with the addition of inunit washers and dryers, and new bathrooms with updated vanities, tubs and toilets.
However, the addition of these upgrades is a complicated process for a 1960s-vintage building. “The effort will entail additional plumbing stacks, new electric systems to handle the increased electrical load, and venting, a process we are well-prepared to meet,” says Loney.
These updates to the systems will account for a significant portion of the renovation cost, which is expected to be $30,000 to $40,000 per unit depending on the size and layout of each unit.
The firm is also implementing a plan “to improve management of the marina, increase slip rentals and potentially add amenities such as a shower area and bathroom for marina guests,” says Alexander. “We have already created a new website for the marina to enhance marketing as part of the effort to increase awareness of our well-located and affordable boat slips.”
Watergate Village’s other amenities are being extensively improved and/or expanded, including a $500,000 reconfiguration and upgrade of the two-story clubhouse.
“The look will be much brighter and will take advantage of the views of the water,” says Rieder. “We will be replacing furniture, redoing the interior design including wall coverings, flooring and lighting, adding new windows, adding a clubroom with a wet bar and designer seating areas and installing an elevator to connect both levels.
“We’re going to create more of a community feeling for the clubhouse,” says Rieder. “We want it to be more inviting for residents to come in and mingle. We also want to provide what Millennials are looking for in terms of amenities.”
Additional plans call for an expansion of Watergate Village’s onsite gym, including installing new state-of-the-art equipment, installing new audio/video systems and adding a designated yoga room and a game room. The outdoor pool deck has already been resurfaced, and new deck furniture has been added there, as well. Also on the agenda is a dog park, a modernized playground, a new soccer field, new gazebos and shaded rest areas throughout the property, 10 new outdoor kitchen grilling stations and much more.
Extensive façade work to improve the property’s external appearance is also on the agenda for Watergate Village, according to Alexander.
“And with our firm’s expertise in professional hands-on management, we are committed to ongoing improvement of the management of this property,” says Rieder.
As a response to Annapolis’ reputation for restrictiveness for new construction and renovations, CLP’s principals have made a strong effort, spending a considerable amount of time throughout the acquisition process, meeting with city officials to communicate their vision for the property and ensure that it becomes an integral part of the Annapolis community.
CLP is known for its community involvement and outreach in the areas in which it invests. In this instance, the firm has made the damaged building available for multiple field training exercises for the City of Annapolis, Anne Arundel County and U.S. Naval Academy fire departments.
With its well-earned reputation for meeting the challenges presented by value-add real estate opportunities, CLP is fully prepared to implement a broad, ambitious and ongoing strategy for Watergate Village. Going forward, the firm is also exploring opportunities for creating additional value at the property, including studying the feasibility of building additional units.