Apartments offer work, profit during down economy

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Ray Rhodes and his family have found success renovating apartment complexes like this one, the Galley Manor.

Christie Mackey’s two-bedroom apartment at Galley Manor is a nice place.

There’s glimmering new tile in the dining room and kitchen, tile countertops, new carpet, six-panel doors, fresh paint and new energy-efficient windows.

“Oh man,” she said. “Everything you see is new. There was not a lot of TLC here, for sure.”

Mackey is both tenant and property manager at Galley Manor and next-door Courtyard at De Cortez near the intersection of Circle and Galley. She lived through a big renovation at the complex.

Both properties were in shambles three years ago with extremely low occupancy, said Ray Rhodes, who bought the properties with his two sons and brother, renovated them and filled them up with new tenants.

The Rhodes family has found a profitable business in the current real estate market.

“We buy the property at a price low enough that we can borrow enough to fix it soup to nuts,” Rhodes said.

The Courtyard at De Cortez was the family’s first foreclosed apartment building in the current market. Rhodes bought the 32-unit building three years ago, he said. There were nine units rented in the whole facility and just two others that could be rented.

“The rest were uninhabitable,” Rhodes said. “This whole place was completely run down.”

Stuart Sloat, Rhodes’ broker, said that’s typical in the apartment market these days.

“There’s a wide split in the value of rental properties,” Sloat said. “Stable, well-maintained assets have held their value extremely well. The owners who got in over their heads have let their properties go.”

Some of the older properties that haven’t been maintained are going for as little as $20,000 a unit, and 30 to 60 percent below their sale prices in the early 2000s, Sloat said.

The rental market is strong now and it’s a good place to invest. But a rental property is worthless if the units need a substantial financial and labor investment before anyone can move into them.

The Colorado Division of Housing released figures last month indicating that Colorado Springs apartment vacancies are the lowest they’ve been in a decade and that rent is slowly starting to climb.

Troops returning to area military bases, high foreclosure rates and a tighter lending market are driving people to rent, industry experts said.

Renovations at the properties took a little more than a year for each.

The Rhodes family now has one empty unit between the 32-apartment Courtyard De Cortez and the 35-apartment Galley Manor. Galley Manor had only 15 of those 35 units occupied when the Rhodes family bought it a year and a half ago.

“We didn’t bump rents all that much,” Rhodes said.

Units in both buildings rent for about $550 a month for a one-bedroom and $600 to $650 for a two-bedroom. That’s including utilities.

“The thing we’re really trying to do here is increase the affordable housing inventory in this area,” Rhodes said. “There are a lot of people, hard-working people, who just can’t afford a lot for rent. We want to give them a nice, clean comfortable, quiet place to live.”

Rhodes is quick to point out that he and his family are not professional developers. He spent more than 20 years working in health care administration and has owned rental properties all of his adult life. When they grew and became something that could support him financially, he said he made the transition.

“I like to do good, but I also like to do well,” he said.

Renovating blighted rental properties and turning them into not just inhabitable but updated and clean apartment communities is the “good.” Making a return on the investment is the “well.”

“It’s nice to have a family business,” he said.

Rhodes’ two sons Brian and Tim have spent the last three weeks gutting 48 units at the Yampah Apartments just a few blocks down the road from Galley Manor and the Courtyard at De Cortez.

The complex consists of two properties, one with two buildings. The Rhodes will remodel all of them and tie them together to make them feel like one complex.

Of the 71 units, only 25 are occupied.

Rhodes said he got these properties through a foreclosure sale that he began negotiating in October and just closed on at the beginning of May.

“This place doesn’t just need a facelift,” he said. “It needs an image lift.”

He said the complex has been home to some pretty rough characters.

Once the remodeling is finished, which the family team expects will take about 18 months all together, they will rename the property Mountain Point.

The windows are dirty and dingy, with what looks like a permanent layer of grime on them. The layouts in some of the apartments are strange, as if a previous owner put up extra walls in an attempt to call what once was a one-bedroom a two-bedroom unit.

“This is our one-bedroom plus,” Tim Rhodes said. “One bedroom plus a den, one bedroom plus office. We won’t call this two bedrooms.”

The 1960s, ‘70s era buildings just feel like a place where you wouldn’t want to walk the halls after dark. Some of the doors are covered with holes and scratches and held shut with screws. You can almost see the teal pattern of the carpet peeking out from under a dark layer of soot.

“I think what happened was, these landlords bought these properties for too much and took everything out of them,” Rhodes said of the many rental properties with slipping and low values today.

“They didn’t put anything into them. Then they started having maintenance problems so they started lowering the rents. And then they started to lower the standard of people moving in here. I believe when you have a bad building, it can be directly attributed to the landlord.”