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

EquityMultiple’s active listing for the Lee’s Summit Development offers a target net internal rate of return (IRR) of 22.8%. This master-planned community in Missouri is set to provide build-for-rent townhomes and villas. Is this ambitious IRR achievable? Let’s delve deeper into the details.

Overview of the Offering

Key Points:

* 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)

About The Montage at Lee’s Summit

The Montage at Lee’s Summit is planned as a 226-unit community offering various amenities, including miles of trails, water features, shaded gathering spaces, firepits, pickleball courts, a dog park, clubhouse, fitness facility, and a resort-style pool, as stated in the Investor Packet. This MultiFamily Development is located in a thriving real estate market with an attractive location, growing population, increasing employment rates, low unemployment, rising average household income, growing rents, and a low vacancy rate.

Location and Community

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

Population Growth and Projections

Over the past decades, Lee’s Summit has been one of the fastest-growing suburbs in Missouri. The population has grown from 8,267 in 1960 to an estimated 104,638 today. By 2040, the Kansas City/Lee’s Summit population is projected to grow by over 30%, adding as many as 38,000 new residents.

Employment and Major Employers

Employment in the Kansas City MSA increased by 2.3% in the fourth quarter of 2023 compared to the same time a year ago, resulting in 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, which was acquired by Oracle.

Income and Rent Growth

Census data shows that 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. In the last 12 months, asking rents in Lee’s Summit increased by about 5% to $1,288 per month, exceeding the MSA average of $1,172 per month. REIS forecasts that asking rents will continue to grow by approximately 3.9% per annum through 2024 and 2025, reaching an average of $1,471 per unit per month.

Vacancy Rate

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

Conclusion: Is the 22.8% IRR Realistic?

Although a 22.8% IRR may initially appear overly optimistic, an in-depth examination of the supporting information suggests that The Montage at Lee’s Summit has the potential to achieve an IRR of over 20%. For more information on this exciting MultiFamily Development, click here.