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An Exciting MultiFamily Development in Lee’s Summit: The Montage

EquityMultiple has listed a promising investment opportunity in Lee’s Summit, Missouri: a build-for-rent, master-planned community of townhomes and villas named The Montage at Lee’s Summit. With a target net internal rate of return (IRR) of 22.8%, investors may be curious if these returns are realistic. Let’s dive into the details of this development and its potential for success.

Key Investment Details

  • Property Type: Townhomes
  • Investment Type: Equity
  • Target Closing: January
  • Target Hold Period: 36 Months
  • Minimum Investment: $15,000
  • Projected Returns:
    • IRR: 22.8%
    • Multiple: 2.0x
    • Cash-on-Cash (average): 7.6%
    • Hypothetical Return on $100,000 investment:
      • Year 0: ($100,000)
      • Year 1: $0
      • Year 2: $0
      • Year 3: $19,096
      • Year 4: $180,691 (anticipated exit)

Amenities and Features of The Montage at Lee’s Summit

According to the Investor Packet, The Montage at Lee’s Summit will consist of 226 units and offer miles of trails, water features, shaded gathering spaces, firepits, pickleball courts, a dog park, clubhouse, fitness facility, and a resort-style pool. Lee’s Summit boasts an attractive real estate market with a growing population, rising employment rates, low unemployment, increasing average household income, growing rents, and a low vacancy rate.

Location: Lee’s Summit in the Kansas City Metropolitan Area

Lee’s Summit is one of 17 suburbs in the Kansas City Metropolitan Statistical Area (MSA), located 16 miles southeast of Kansas City. As the 6th largest city in Missouri, Lee’s Summit offers a desirable suburban lifestyle with good schools, parks, and community amenities that attract families.

Population Growth and Projections

Lee’s Summit has experienced significant growth in recent decades, with its population increasing from 8,267 in 1960 to an estimated 104,638 today. The Kansas City/Lee’s Summit population is projected to grow by over 30% by 2040, adding as many as 38,000 new residents.

Employment and Major Employers

Employment in the Kansas City MSA grew by 2.3% in the fourth quarter of 2023, with a gain of about 25,000 jobs. Major employers in the area include HCA Midwest Health System, University of Kansas Hospital, Saint Luke’s Health System, Ford Motor Company, T-Mobile, and Cerner (acquired by Oracle).

Income and Rent Growth

According to Census data, the median household income in Lee’s Summit is approximately $89,140, about 20% higher than the Kansas City MSA and about 1.4 times higher than the state average. Over the last 12 months, asking rents increased by about 5% in Lee’s Summit to about $1,288 per month, exceeding the MSA average of $1,172 per month. REIS forecasts asking rents to increase approximately 3.9% per annum through 2024 and 2025, reaching an average of $1,471 per unit per month.

Vacancy Rates

As of July 2023, the vacancy rate in Lee’s Summit was about 6.2%, which is 2.9% higher than its long-term average and 1% higher than the Kansas City MSA average. However, REIS forecasts long-run vacancy to decrease to about 5.7% by 2024 and 4.7% by 2025.

Is a 22.8% IRR Realistic for The Montage at Lee’s Summit?

While a 22.8% IRR may initially seem optimistic, the supporting information suggests that The Montage at Lee’s Summit could indeed achieve an IRR north of 20%. With a strong location, growing population, and favorable market conditions, this MultiFamily Development offers an attractive investment opportunity for those seeking potentially high returns.