Edition 002: Studio City Closes, 98 Units Across Three Properties

Welcome to the second edition of the DK Equity Monthly. Same format as last time: new acquisitions, updates on the portfolio, and what’s going on in Central Washington. Last month we said this section would start getting real with actual numbers, so that’s what this one is.

Quick note before we start. We have a 24-unit property under contract in Moses Lake. We’ll share more once it closes, but if you want to hear about it sooner, reply to this email with 24 and we’ll reach out.

We closed on Studio City on September 18. It’s 45 units on West 3rd Avenue in Moses Lake and we paid $2.13 million, about $47,000 a door. That puts DK Equity at 98 units across three properties. Including what we own outside of DK, that’s roughly 150 units for Cam and 250 for Cody, with some overlap between the two.

The asset. Studio City used to be a motel and was converted to apartments a long time ago. There are 44 studios that average 336 square feet, plus one 2-bed. The units have fridges but no kitchens, and that’s our play. When we bought it, the building was around 76% occupied, rents were well below market, and the prior manager already had five tenants on pay-or-vacate notices. The bank’s appraisal came back at $2.3 million as-is, so we were above our purchase price before we did anything.

The financing. The seller carried 25% of the price at 0% for the first two years, and we got our lender to originate a note in first position ahead of it. All in, we’re at roughly 94% loan to cost at a combined rate of 4.63%, fixed. The Fed raised rates two days before we closed (more on that in Section 3), so the timing worked out. Our day 1 LTV is a lot lower than 94% since we bought below appraisal, and honestly that says a lot about how much confidence our seller and our bank have in us.

What we’re doing. Two things. First, we’re leasing it up. The prior property manager let occupancy slide to around 76%, and getting the building full is the easiest money in the deal. Second, we’re adding a kitchen to each unit as it turns, at about $4,000 to $5,000 per unit. We’ve only owned it for eight days, but materials are already on site and rough plumbing started this week.

Why we’re excited. Our base case is $695 a unit. The appraiser put market rent for these units at $700, so we’re not stretching. At $695 across the building, with expenses around $3,300 to $3,500 a unit (the property has run between about $3,000 and $3,900 a unit over the last three years), NOI lands around $213,000 to $220,000. We bought at about a 7 cap and we don’t underwrite cap rate compression, so at that same 7 cap the building is worth roughly $3.0 to $3.1 million within about a year. We paid $2.13 million. If you use the appraiser’s 7.25% cap rate instead, it’s still about $2.9 to $3.0 million.

That’s before the kitchens do their job. We already have proof of concept on studios with kitchens leasing at $775. If we get $775 across the building, even using the appraiser’s higher expense number of about $4,060 a unit, NOI is around $227,000, which is about $3.2 million at a 7 cap.

On LinkedIn we said this deal should turn into our first liquidity event fairly quickly. We’ll be tracking it here every month.

Distributions. Good news for our Campus Village investors: the first distributions go out by ACH today, the same day this newsletter goes out. These were supposed to go out last week, and a light administrative delay on our end pushed them back a few days. Thank you for your patience.

Occupancy. We’re at 39 of 41 units occupied going into CWU’s fall quarter, with two vacancies right now. Applicant flow is still solid.

Washer/dryer update. Last month we told you three tenants said yes in the first 24 hours at $125 a month. Then three of the early yeses backed out on install day, and all of them said the same thing: the laundry room on site was too convenient. So we changed two things. We dropped the price to $99 a month for the first year, and after about $20 in utilities, each opt-in adds around $80 a month to NOI. We’re also shutting the laundry room down in about 30 days, and we expect that to bring in more opt-ins. We’re at 10 now and hoping for 25 by the end of the year, which would be about $24,000 a year in NOI.

Once the laundry room is gone, we’re turning it into a 1-bed, which should add roughly another $800 a month of NOI on top of the washer/dryer income. Starting next year the washer/dryer won’t be an opt-in anymore. We’ll build it into rent as leases renew. What slows that down is Washington’s rent cap (House Bill 1217, which we covered last edition) and leases the prior owner signed before we bought the property, so it will take one or two renewal cycles.

Rent by the room. Last month this was an idea we were testing. Now we’re doing it. A 2-bed/1-bath at Campus Village rents for about $1,100 to $1,200 as a whole unit. If we rent it by the room, furnished, each room goes for $795, so $1,590 for the unit. That’s roughly $390 to $490 more a month per unit. We furnished our first unit last week and already have several applications pending. We plan to do a lot more of these as 2-beds turn over.

Google. We’re at 4.0 stars now, up from 3.8 last month and around 2.3 when we bought it. We were hoping to hit 4.5 before the school year started and we didn’t get there. We’ll keep pushing reviews through management, and 4.7 by the end of 2027 is still the goal. Campus Village on Google

Proof of concept. We underwrote renovated units at $1,350. Our first renovated unit leased at $1,375. The whole deal depends on market rent being where we said it was, and now we’ve proven it.

Rent increases. The 9.683% increases went out to in-place tenants on the required 90-day notice.

Turnover. One tenant moved out. They didn’t have a deposit on file, so they basically abandoned the unit. That’s a big deal for us: the unit was paying about $900, and once we renovate it and lease it at market it adds close to $500 a month in NOI. Our other renovated unit is back on the market after an applicant backed out last minute. They showed up on move-in day with a partial deposit. It happens, and we’re showing it again.

The scoreboard as of today:

The biggest local news this month came from Grant County PUD. At a September 15 workshop, PUD staff proposed 2027 rates, including new rate classes just for data centers. Residential and small business customers would go up 3.5%. Large industrial customers would go up an average of 9.5%, and the biggest loads an average of 12.5%. The PUD’s reasoning is that demand has outgrown its hydropower, so regular customers should get first claim on the cheap power and big new users should pay for the infrastructure they need. There’s a public meeting November 10 in Ephrata, a vote on December 15, and new rates would start April 1, 2027. The PUD says residential and commercial rates would still be under half the state and national averages. Its 2026 resource plan, adopted August 25, says the same thing a different way: enough energy through 2046, but not enough summer capacity starting in 2030, and a recommendation to buy about 360 megawatts of battery storage between 2030 and 2032. For us this cuts both ways. Tenants’ power bills go up a little, and new data centers get more expensive to build, so we’d expect steady job growth in Grant County over the next few years rather than a huge spike.

Last month we said we’d watch the July county jobs numbers. They came in mixed. Grant County unemployment was 4.4% in July, down from 5.0% in June, but that number isn’t seasonally adjusted and summer farm work pushes it down. The county added 650 jobs in the month to 34,800. Over the full year, though, it only added 310 jobs (0.9%), and all of that came from government (up 490) while manufacturing lost 200. Statewide, Washington lost about 900 jobs in August: private employers cut 9,000 and government added 8,100. Over in Kittitas County, where Campus Village is, commissioners extended the data center moratorium to a full year, through September 2027, and Cle Elum is setting up its own committee under a separate moratorium. That doesn’t change anything for us in Ellensburg. That market runs on CWU, not industrial jobs, and that’s how we underwrote it. On the good side, the Port of Moses Lake put its railroad project out to bid: about 4.7 miles of new rail spur and 2.7 miles of track improvements, with bids due October 2. The Port needs rail to bring in industrial tenants, so this matters. We didn’t find any new timeline on Sila’s Moses Lake expansion.

Last thing: on September 16 the Fed raised rates by a quarter point to 3.75% to 4.00%, the first increase since 2023, because inflation is still elevated. Higher rates usually push cap rates up and make new construction harder to pencil. That helps existing owners since less new supply gets built, but it makes buying harder for anyone taking on new or floating debt. Next month we’re watching the Port’s rail bid results, CWU’s fall enrollment numbers (usually out in October), Grant County’s August jobs release, and public comment before the PUD’s November 10 rate meeting.

Thanks for reading edition 002. If you know someone who should be getting this, forward it along. Questions, deal flow, or feedback: [email protected].

Camden Kaminsky and Cody Davis

DK Equity