This is the first in a 12 part series chronicling the 2 year process of purchasing and renovating an abandoned and condemned 62 unit apartment complex located 30 miles outside of downtown Pittsburgh, PA.
Patrick, Clayton, and Eric were all fielding demanding full time careers when they finally decided in December of 2017 that it was time to stop planning and start taking action to create the company they talked about for months. A Frankenstein’s monster of an entry level real estate investment portfolio hit the market in Coraopolis, PA and they pulled together just enough of their own capital to make a real run at the project. This portfolio of mixed commercial, multifamily, vacant lot, parking lot, and vacant single family homes was just the right blend of “potential” and disaster that the competition was limited but their ambitions were not. Ten months into the project the “potential” portion paid off and they were able to cash out 85% of their initial investment on the $1.6M project. From there it was off to the races and Rice Pegher really had its start.
September 28th, 2020 – She was a real beauty, not totally vacant when we started but well on the way. The apartments that were not already vacant and condemned were occupied by a scattering of long term tenants who had hung on through years of deterioration and mismanagement. Their new “neighbors” were really just occupants, mostly unsavory characters, and certainly not vetted rent paying tenants. The accessible, thinly occupied, and partially condemned apartment complexes were a blight to the neighborhood and a drain on the local municipality resources.
If the condition on paper and in the marketing materials looked dire, the in-person perspective was even worse. The advertised 64% occupancy rate was closer to 30% and the economic vacancy was even lower. The empty apartments were full of years of trash, drug paraphernalia, fire damage, and abandoned pets. It was clear that very little would be salvageable though overall the structural components appeared to have survived the neglect.
The 62 total units consisted of a 30 unit complex in New Brighton, PA and, just down the road, another 32 unit complex in Rochester, PA. They had gone through multiple ownership changes in the prior decade, each group mismanaging the assets even more so than the last. This deal was a bit like the first Rice Pegher deal, just the right mix of “potential” and disaster to keep the competition low but our ambitions high. With many projects and 3 years of additional operational experience under our belts, we were confident in our ability to mitigate the risk while providing great upside opportunity. In fact, we envisioned a triple win scenario:
- Residents – Providing clean, safe, affordable, and professionally managed housing options for more than 100 people in these working class communities
- Community – Replacing blighted and abandoned apartment complexes with well kept and professionally managed apartment buildings
- Company – Adding a great long term asset to Rice Pegher portfolio
Listed at an aspirational $1.75M price tag we knew we would have our work cut out for us when we reached out to the listing broker.
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