“Almost impossible”: How Brazos Residential made sense of Texas multifamily madness 

The co-founders of Brazos Residential scoured the country for a deal like this.

Hilltop Village was a 248-unit apartment complex about 65 miles north of Dallas in the boomtown of Sherman, which hurtled to prominence in the 2020s by attracting billions of dollars in semiconductor plants.

For all its strong points, the property also had warts. It was built in 1969 and had what Brazos co-founder Will Hancock generously described as “physical asset challenges.”

In the last three years, the property at 4919 Timberview Drive suffered two devastating fires. The 2021 fire killed a resident. As Brazos was hammering out its acquisition, there were still active insurance claims from a 2023 fire that sent at least three people to the hospital and destroyed eight units.

Then, a hail storm damaged the roof while the property was under contract.

As a result, occupancy at Hilltop Village hovers around 50 percent, and the property was “hemorrhaging money,” said Hancock.

That’s part of what made it the ideal asset.

The land of OZ

Brazos closed on Hilltop Village earlier this month. The price was not disclosed, but the local appraisal district valued the property at $8.7 million in 2023. The buyer paid cash, and it’s not done spending yet.

Brazos plans to invest at least $10 million, or $40,000 per unit, to renovate the property.

Not only will that influx of cash remediate the property’s fire and hail damage; it will also allow Brazos to upgrade the units with granite countertops and individual HVACs for each unit. (The property is currently outfitted with one air conditioning system unit that cools the entire property.)

The deal only works out financially because the property is located in one of Texas’ 628 opportunity zones.

This designation requires a buyer to invest a sum equal to the non-land basis paid on the property. In return, appreciation on the property isn’t taxable. Plus, capital gains tax on earnings from opportunity zone investments can be deferred until the end of 2026.

Hancock said making a deal like this work is “nearly impossible,” because the property has to be cheap and in need of a lot of work for the deal to pencil.

“Without the opportunity zone designation, we wouldn’t have been able to do this asset,” he said.

Seal the deal

Closing on a contract usually takes the developer between 30 and 60 days, but this transaction took nearly eight months.

In a post on LinkedIn, Brazos’ James Roberts described the deal as “complicated.”

“More ‘hair’ than any transaction I have been a part of,” he wrote.

In addition to being located in an opportunity zone, the property had a HAP contract.

The U.S. Department of Housing and Urban Development’s Housing Assistance Program provides subsidized housing similar to Section 8 housing vouchers, except the money goes directly to the property owner rather than the tenant.

A third-party analysis of the market sets the rents every five years. Hilltop Village’s rents are up for reconsideration in September; 70 of the property’s 248 units are restricted to tenants earning 80 percent of the area median income or less.

HUD no longer creates new HAP contracts, but this contract lasts another 10 years with the opportunity to renew. In light of the HAP contract, the transaction required additional vetting and approvals from HUD, Hancock said.

Plus, Grayson County property records show there were eight liens on the property since 2020 for work done at Hilltop Village.

Brazos didn’t name the seller, but appraisal district records show it’s an entity affiliated with New Jersey-based affordable housing provider PF Holdings.

Water works

Brazos isn’t done clearing hurdles for this project.

High interest rates means construction financing is hard to come by. Plus, the influx of rental units coming online has increased vacancy levels and pushed rents down.

Roberts said the firm’s business plan accounts for elevated construction costs. That plan factors in the wave of Sherman’s highly-anticipated tech boom.

City officials are planning for Sherman to double in population over the next decade with Texas Instruments and GlobalWafers poised to open new plants there as early as 2025.

“Sherman is always a dynamic, growing market that we believe will ultimately continue to grow, putting upward pressure on rental rates,” said Roberts.

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