Macadam Village

8 buildings totaling 56 units in the South Waterfront district of Portland, Oregon. Three stories above ground, two stories below ground with underground parking garages on every building. Walking distance to the river, parks, university, and the aerial tram running up to the regional teaching hospital and research campus. The neighborhood was just starting to take off when we acquired the property. The first condo towers had broken ground. The hospital research building was under construction. The aerial tram had just opened. Everyone in real estate was watching the area, but most of the institutional product was still in planning. We got there early.

A printing family. They'd run a successful printing company for decades, but as digital displaced print, the business was winding down. The apartment buildings were one of the family's investments — originally built with the intent to convert to condos at the right time. That conversion never happened. Here's why.

Someone had convinced the family that all 8 buildings were full of mold and rot. The exterior was stucco, and a contractor had bid the residing project at $3-5 million. The family looked at the cost, looked at their core business in decline, and decided to sell instead of convert. They didn't run the test that would have changed their decision. We did.

The deal wasn't on the market. Our land-use attorneys shared a building with another attorney who knew the family. He called us. We did our due diligence and made an offer: $8 million flat. No counter expected. Acquisition closed in roughly 3 months. Set up a separate LLC for the conversion play. They accepted without countering. We were paying more than they expected — but we knew something they didn't.

Before we closed, we hired a firm to scan all 8 buildings with infrared camera technology. Cutting-edge at the time. The infrared shows mold, rot, and active moisture in the wall cavities — invisible to the naked eye and missed by standard inspections. The seller had never run this scan. What we found: minor framing issues in one corner of one upper building, and small spots in two others. Total framing repair cost: about $5,000. The building wasn't full of mold and rot. It was a few isolated spots that any normal renovation would catch. The $3-5 million siding bid the seller had been quoted? Real concern, but vastly overpriced for the actual scope of work needed.

We owned a general contracting company. That changed the entire economics of the project. The seller's bid for residing all 8 buildings was $3-5 million. We did the same scope of work for under $1 million. How we got there: Direct contracting. No GC markup on top of subcontractor pricing because we were the GC. Wholesale window pricing. Bought new Milgard windows directly from the manufacturer instead of through a distributor. In-house labor coordination. Sequenced the trades ourselves rather than paying for someone to manage it. Membrane roof installation. Replaced the flat roofs with a plastic membrane system that doesn't leak. Standard for Oregon flat roofs but properly speced. Same scope. Same materials quality. New windows, new railings, new roofs, full interior remodels. Roughly 70-75% lower cost because we removed every layer of markup between us and the actual work.

We acquired as apartments. We immediately filed for condo conversion across all 8 buildings even before construction started. That decision did two things: It let us sell each building as it finished. We didn't have to wait for the entire project to complete before generating revenue. It captured peak condo market pricing in 2007-2008. South Waterfront was just starting to pop and condos were trading at strong premiums. We rolled through the buildings two at a time. Started with the upper two — 16 units total — by asking the existing tenants to leave. Resided, repainted, replaced the roofs, gutted and remodeled all interiors with modern finishes. Sold them as condos. Moved to the next two buildings. Sold those. Repeated until done. The remaining tenants stayed in their apartments and paid rent during construction. That rent covered the carrying cost of a $70,000/month mortgage payment on the asset.

The market started to crack in 2008 right as we were finishing the project. Condo values began dropping fast. Some of the later units weren't going to sell at the prices we'd modeled. Two moves got us through: We took units in lieu of cash distributions. Several investors and I personally accepted condo units instead of cash to get them off the project's books. I took 6 units. Other investors took 3 each. We rented the held units out. Generated cash flow during the downturn. Eventually sold them years later when the market recovered. The units I held became my kids' college fund. Free and clear, given to them when they needed them.

Acquisition: $8 million Residing & exterior renovation: under $1 million (vs $3-5M industry bid) Total project timeline: 22-24 months Total units: 56 across 8 buildings Condo conversion pricing: top-of-market for the neighborhood in 2007-2008 Carrying cost during conversion: ~$70,000/month mortgage covered by remaining tenant rent Personal units retained: 6 (held through downturn, rented, eventually sold or gifted)

Three things about Macadam Village are worth understanding. 1. The diagnostic move that nobody else made was worth millions. The seller never ran the infrared scan. Three potential buyers before us never ran it either. We did, and it told us the $3-5 million siding bid was wildly overpriced for the actual scope of work. That single $20,000-$30,000 diagnostic test changed the math on an $8 million acquisition. The work nobody else thinks to do is usually where the margin lives. 2. Owning the GC eliminated 70-75% of the renovation cost. The same residing work cost us under $1 million instead of the $3-5 million the seller had been quoted. Direct contracting, wholesale materials, in-house sequencing. This is the kind of structural advantage that doesn't show up on a spreadsheet but determines whether a deal works or doesn't. We bring the GC capability to every project we touch. 3. Sell as you build. Don't wait for the whole project to finish. Most renovation conversions wait until the entire project is complete before going to market. We sold each building as it finished. That generated revenue earlier, lowered our carry, and let us capture peak market pricing on the early buildings before the 2008 downturn hit. By the time the market cracked, we'd already cleared most of our position. This was one of the most operationally complex deals we've ever done. 56 units. 8 buildings. Active tenants throughout construction. A failing condo market in the back half of the project. We worked the conversion the entire way through and walked out with strong returns.

The diagnostic move nobody else makes is usually where the margin lives. And owning the GC is structural margin on every deal.