Can The Green Monster Be Saved? Apartment Complex For Sale

Lyndon State Bank is selling St. Gregory Apartments, a 114-unit apartment complex located at 635 S.W. Harrison St., Topeka.

David Thornburgh, CEO of Lyndon State Bank, said the bank took over ownership of the property in summer 2015 from Athar A Kazmi. The bank is working to make the apartment building profitable. The owner has evicted multiple nonpaying tenants, so occupancy of the building has fallen to 31%. A new roof was recently installed. One elevator was upgraded and a second elevator is being rebuilt.

Photo Courtesy of Shawnee County Appraiser's Office

The building has 99 studio apartments, 13 one bedroom units and two two-bedroom units. Rent for a studio is $440 per month. A remodeled studio rents for $495. 

On March 30, 2016, when I toured the building, there were 36 units occupied, giving the building a 31% occupancy rate. There are 17 offices on the ground floor, but only one commercial space was leased to a barber. Most of the offices were in decent shape and could be leased immediately.

The big challenge with the building is the outrageous cost of heating and cooling. Heating and cooling costs are the responsibility of the owner of the property. Each apartment is heated or cooled with electric window unit. There is very little insulation. As a result, the heating and cooling units are extremely inefficient. In January, the bill from Westar Energy was $11,276, and that is paid by the owner, not the tenants. But if you divide the 36 occupied units into the $11,276 bill, that is $313.22 per apartment in January. But remember, the tenant does not pay a utility bill.

Because January revenue was only $16,700 and expenses were $26,607, the building incurred an operating loss of -$9,907, and that does not include expenses for insurance or property taxes. Property taxes are $2,901 per month and insurance is $2,634 per month. So if you include those numbers in January, the loss was -$15,442.

February and March numbers look better, partly because the weather was mild, but the property still has a long ways to go before it is profitable. The operating loss in February was -$13,444 and the loss in March was -$7,218 (this includes expenses for taxes and insurance).

Thornburgh said there are only two ways to increase profits: increase revenue or decrease expenses. On the revenue side, the bank has hired someone to renovate apartments at a cost of $2,500 per unit. There is no problem finding someone to rent a renovated unit. Tenants and prospective tenants all want to be in the renovated apartments.

Another way to increase revenue is rent out the commercial space on the ground floor. Currently only one space for a barber is occupied. There are 17 offices available and one small conference room and one big conference room on the ground floor. If you charge $400 per month for an office, that could generate up to $7,000 additional revenue per month. 

St. Gregory Apartments was built in 1955 as a hotel. At the time, lime green was a popular color in America, but the green has lost favor. People call the building the Green Monster and for good reason. The place was the site of multiple crimes in recent years, including a stabbing that left someone dead.

Management has kicked out people who do not pay rent. This has improved the safety of the building.

Whoever buys St. Gregory Apartments will need a plan to upgrade the heating and cooling system. The tenants need to be responsible for paying for their utilities. Right now tenants have no incentive to conserve energy. They could turn on the heat and open a window and not get charged for the waste of energy going out the window.

Natural gas is a cheaper way to heat than electricity as natural gas prices are near all time lows. The United States has an 84-year supply of natural gas, so prices should remain reasonable for a long time. But there is no natural gas hookups in each apartment. And then there is the problem with the lack of insulation.

My daughter lives in a Shawnee, Kan., studio apartment that had a $28.00 natural gas heating bill in February. Her apartment is modern, efficient and insulated, and heated by an efficient natural gas furnace. St. Gregory needs a super energy efficient heating and cooling system that would drop the bills by 50% to 100%.

Shawnee County Appraiser has listed the appraised value of the property at $1,436,950. The owner has appealed the appraisal and hopes to lower the valuation to $950,000.

Below is the financial statement for the property listing revenue and expenses for the first three months of 2016:

Courtesy of Lyndon State Bank

Lyndon State Bank is taking sealed bids for the property through 10 a.m. April 13. For more information, contact David Thornburgh at 785-828-4411.