An illustrative review
Illustrative example only. A hypothetical acquisition used to show how Avanor structures an independent review. It is not a client engagement.
The deal
A 288-unit apartment community completed in 2025 and still leasing up, in a Sun Belt metro with new supply under construction. Asking price $60.0 million, about $208,000 a unit. Financing is a two-year bridge loan at 65% of the price and 6.40% interest, refinanced at month 24 into a permanent loan at 60% of value. Five-year hold. The offering materials project a 20.7% levered IRR. The sponsor's hurdle is 14%.
Key figures
Return reconciliation
We start from the projected return and replace one assumption at a time with ours, in a fixed order. Each step shows how much of the gap that assumption explains. The steps add up to the full difference.
Downside tests
Our base case clears the hurdle by 0.9 points. These tests show how easily that margin goes.
Our answer
Supported with material qualifications
The thesis holds at $60.0 million on our numbers, with 0.9 points of margin over the hurdle. The margin is thin. A slower lease-up or concessions that persist would each remove it, and a smaller refinancing would turn a distribution at month 24 into a call for new equity. The support depends on what is in place before closing.
The three most relevant risks
Lease-up and competing supply
New supply delivers in the first year of the hold, into a property that is still leasing up. Our base case already allows 18 months to stabilize. If lease-up runs six months slower, the return falls to 13.7%, below the hurdle, and year 1 income covers only 0.97x of bridge interest.
What needs to be in place
Pre-leasing before the new supply delivers, lease terms that move expirations past it, and a marketing budget held at lease-up levels.
Concessions and effective rent
Asking rents in the offering materials may be achievable on paper. With competing lease-ups nearby, effective rents can stay below asking even after occupancy recovers. The property can reach 95% occupancy and still miss its income. If concessions settle at 2% of rent after stabilization, the return falls to 12.4%.
What needs to be in place
A review of the last 90 days of leases on an effective-rent basis, and a business plan that prices concessions explicitly through year 2 and beyond.
Refinancing at month 24
The plan depends on taking out the bridge loan at month 24. Our base case returns $2.5 million at that point. If the lender sizes the loan at 55% of value, the refinancing needs $1.0 million of new equity. With a six-month slower lease-up it needs $2.4 million, and the return falls to 13.2%. Equity stays in the deal longer, or the bridge has to be extended.
What needs to be in place
A bridge term of at least 36 months with extensions tied to a debt yield test, a rate cap through the full term, an interest reserve sized for a slower lease-up, and an early read from permanent lenders on sizing.
We give you the answer. The decision stays yours.
How a review works