Imperial Arms Apartments — Q3 2026
Dear Partners,
Q3 was the busiest leasing quarter since we took over the Imperial Arms. We signed 24 leases, nine new residents and fifteen renewals. Every new resident signed at or above the prior rent, with no concessions. We distributed $35,000, which brings the total returned to $96,000 since our February close. That is a pace of roughly 10% a year on your invested capital.
The quarter was also hard, and you should hear that from us directly. Rolling out utility billbacks led a number of residents to move out rather than renew. Move-outs caught up with us in late summer, seven in August alone, and occupancy dipped to 87% on September 1 before recovering to 90.9% on October 1. Turn costs and a September water leak, which we are pursuing through the responsible resident's renter's insurance, pulled Q3 NOI down to about $99,000. We set a smaller distribution than Q2's to match.
The tabs above cover the full detail: every unit we have re-leased this year, each renewal, the operating results month by month, and the building improvements. The Valuation & Equity tab lets you see what your own stake is worth under different assumptions. We set its defaults conservatively and explain the caveats.
Our work for the winter is straightforward and within our control: lease the remaining vacancies, finish moving the rent roll onto the billback, and complete the move to a new insurance provider. The billback program is the most important income lever in our plan, and with 29 leases on it and more converting as leases renew, it is starting to pay off. Thank you for your continued trust. As always, please call or write with any questions.
Our Busiest Leasing Quarter, During the Billback Transition
We signed 24 leases in Q3, nine new residents and fifteen renewals, all without concessions. The partnership distributed $35,000, bringing the total to $96,000 since the February close.
The quarter also brought heavy turnover. The rollout of utility billbacks led some residents to move out rather than renew, occupancy dipped, and turn costs pushed operating expenses higher. The building remains in high demand: units are re-leasing at or above prior rents, two of the five vacancies already have approved applications, and the billback program now covers 29 leases, with more converting as leases renew.
What went right this quarter
Demand for the building held up. We have re-leased 14 units this year, nine of them in Q3, every one at or above the prior rent with no concessions. Fifteen residents renewed in Q3, all with the utility billback. Monthly billback recoveries rose from $115 in June to $940 in September. We also completed a custom bike room, and a new parcel-locker system, the residents' top request, is being delivered.What we are managing
Some residents moved out rather than accept the billback. Move-outs caught up with us in late summer: 18 since takeover, seven in August alone. Occupancy reached a low of 87.3% on September 1, but we are keeping pace, with 16 of the 19 units that opened now filled or committed. Turn costs, a September leak and lost rent on vacant units reduced Q3 NOI to $99.0K from $125.5K in Q2. Through the winter we are offering two weeks free on the first month, more generous than competing buildings.Fourteen Units Re-Leased in 2026, Zero Concessions
Since our February takeover, 18 residents have moved out, a third of the building, as the utility-billback program went into effect. Our leasing has kept pace: 14 units re-leased, every one at or above the prior rent, and two more with approved applications. That means 16 of the 19 units that opened since takeover are filled or committed.
| Unit | Type | Move-in | Prior rent | New rent | Face Δ | Concessions | Utility billback |
|---|---|---|---|---|---|---|---|
| 306 | Studio | Apr 17 | $1,048‡ | $1,049 | +0.1% | $0 | Added |
| 305 | Studio | Apr 28 | $1,035 | $1,049 | +1.4% | $0 | Added |
| 207 | Studio | May 15 | $1,025 | $1,049 | +2.3% | $0 | Added |
| 311 | 2BR | Jun 22 | $1,675 | $1,695 | +1.2% | $0 | Added |
| 302 | 1BR | Jun 28 | $1,240 | $1,275 | +2.8% | $0 | Added |
| 401 | 2BR | Aug 1 | $1,650 | $1,675 | +1.5% | $0 | Added |
| 511 | 2BR | Aug 8 | $1,905 | $1,950 | +2.4% | $0 | Added |
| 307 | 1BR | Aug 13 | $1,295 | $1,325 | +2.3% | $0 | Added |
| 303 | 1BR | Aug 14 | $1,275 | $1,295 | +1.6% | $0 | Added |
| 209 | 1BR | Aug 24 | $1,195 | $1,195 | 0.0% | $0 | Added |
| 510 | Studio | Sep 8 | $995 | $995 | 0.0% | $0 | Added |
| 301 | 2BR | Sep 11 | $1,625 | $1,650 | +1.5% | $0 | Added |
| 308 | 2BR | Sep 20 | $1,635† | $1,695 | +3.7% | $0 | Added |
| 501 | 2BR | Sep 25 | $1,650 | $1,675 | +1.5% | $0 | Added |
| 14 units re-leased | $19,248 | $19,572 | +1.7% | $0 on all 14 | All 14 |
Every new lease also carries the utility billback (an estimated $90–125 per unit per month, billed in arrears), so the full increase per unit is roughly 8–11%. †308 is measured against the prior resident's 12-month base of $1,635; that resident later paid a $1,790 month-to-month premium before moving out. ‡306 was vacant at acquisition, so its prior rent is the average in-place studio rent on the April 1 rent roll.
| Unit | Status | Rent |
|---|---|---|
| 208 · 2BR | Approved application (internal transfer) | $1,675 |
| 211 · 2BR | Approved application | $1,695 |
| 309 · 1BR | Vacant · marketing | $1,275 |
| 406 · Studio | Vacant · freshly turned | $1,025 |
| 210 · Studio | Vacant · turning | $995 |
| 507 · 1BR | Notice · out Oct 1 | $1,465 |
| 204 · 1BR | Notice · out Oct 15 | — |
| 509 · 1BR | Notice · out Nov 13 | — |
Winter leasing: two weeks free
Portland leasing slows in the colder months. New residents now receive two weeks free on their first month. On a 12-month lease this costs about 4% of first-year rent, and it is a stronger offer than nearby buildings are making.Fifteen Renewals, Every One on the Billback
We executed fifteen renewals during the quarter, and some take effect October through December. Twelve-month renewals are offered at about 2% plus the utility billback. Month-to-month is priced at roughly a 9.5% premium. Where keeping a long-tenured resident mattered more than the increase, we renewed at the existing rent with only the billback added.
| Unit | Type | Effective | Prior | New | Face Δ | Term |
|---|---|---|---|---|---|---|
| 101 | 2BR | Aug 8 | $1,550 | $1,581 | +2.0% | 12-month + billback |
| 202 | 1BR | Aug 8 | $1,225 | $1,225 | 0.0% | 12-month + billback |
| 310 | Studio | Aug 8 | $985 | $1,004 | +1.9% | 12-month + billback |
| 405 | Studio | Aug 8 | $1,045 | $1,065 | +1.9% | 12-month + billback |
| 512 | Studio | Aug 8 | $1,150 | $1,173 | +2.0% | 12-month + billback |
| 408 | 2BR | Sep 1 | $1,645 | $1,677 | +1.9% | 12-month + billback |
| 503 | 1BR | Sep 1 | $1,295 | $1,320 | +1.9% | 12-month + billback |
| 102 | Studio | Oct 1 | $950 | $995 | +4.7% | 12-month + billback |
| 105 | 1BR | Oct 1 | $1,240 | $1,240 | 0.0% | 12-month + billback |
| 304 | 1BR | Oct 1 | $1,285 | $1,295 | +0.8% | 12-month + billback |
| 407 | 1BR | Oct 1 | $1,310 | $1,325 | +1.1% | 12-month + billback |
| 403 | 1BR | Oct 1 | $1,250 | $1,368 | +9.4% | Month-to-month + billback |
| 506 | Studio | Nov 1 | $1,065 | $1,075 | +0.9% | 12-month + billback |
| 505 | Studio | Nov 1 | $1,075 | $1,177 | +9.5% | Month-to-month + billback |
| 206 | Studio | Dec 1 | $1,025 | $1,045 | +2.0% | 12-month + billback |
| Fifteen renewals | $18,095 | $18,565 | +2.6% | +$470 face · ~$1,350–1,875 billback |
Why billbacks matter
Water, sewer and trash run close to 30% of the building's operating expenses, and before 2026 the building absorbed all of it. Recovering them is the most important NOI lever in our plan. It is also the main reason for this quarter's turnover.Recoveries grew from $115 in June to $940 in September. Billing runs one to two months behind lease starts, so Q4 will be the first quarter to show the August–October cohort. At an estimated $90–125 per unit per month, the 29 leases on the billback (26 billing now, 3 starting Nov–Dec) represent about $31,000–43,500 a year. Ten more leases convert at their spring 2027 renewals, bringing the total to about $42,000–58,500 a year.
Income Steady, Costs Carry the Turnover
In Q3 the Imperial Arms produced $204,674 of operating income against $105,704 of operating expense, for $98,971 of NOI. Income was down only 2.5% from Q2, because higher fee and utility-recovery income partly offset the rent lost to vacancy. Expenses rose 25.1%, driven by turnover, a September water leak and seasonal utility bills.
| Period | Operating income | Operating expense | NOI | Note |
|---|---|---|---|---|
| July | $69,479 | $38,525 | $30,954 | Turn labor; life-safety inspection |
| August | $70,655 | $29,178 | $41,477 | Incl. $1,943 lease-break fee |
| September | $64,540 | $38,001 | $26,540 | Leak repairs; tax & insurance booked* |
| Q3 2026 total | $204,674 | $105,704 | $98,971 | Full quarter of fixed costs |
| Q2 2026 (compare) | $209,956 | $84,468 | $125,487 | Excl. $9,908 electrical capex |
| Less: senior interest (5.94%, IO) | −$60,885 | Coverage 1.63× | ||
| Less: seller note + AM fee | −$15,478 | $11,342 + $4,136 | ||
| Q3 cash flow after debt service | $22,607 | $35,000 distributed |
Why September ran high
A third-floor toilet leaked for an extended period without being reported, and the water reached two units below. Repairs pushed September maintenance labor and supplies to about $11,100, versus about $4,400 in August. Part of the cost is funded from reserves, and we are pursuing the resident's renter's insurance for reimbursement. September also includes property tax ($5,129) and insurance ($2,839), booked manually because the cash ledger had not yet recorded them.Distribution: $35,000
About 9.1% annualized on $1,542,000 of invested equity, and $96,000 (6.2%) returned since February, a since-inception pace of about 10.1%. Q3 cash flow after debt service was about $22,600. The roughly $12,400 gap was covered by cash retained in earlier quarters (see "Since Inception" below). The August elevator work (about $7,800) was paid from capital reserves. We reduced the payout from Q2's $41,000 to reflect the quarter's turnover.Since Inception: Distributions Are Covered by Cash Flow
Q3's distribution was larger than Q3's own cash flow, but it was covered by cash the property earned and held back in Q1 and Q2, when it generated more than we paid out. Measured from the February close, the partnership has generated about $110,300 of cash flow after all debt service and paid out $96,000, so distributions have been covered about 1.15×. Even after setting aside the monthly capital-reserve contribution, coverage remains above 1.0×.
| Quarter | Cash flow after debt service | Distributed | Cumulative cushion |
|---|---|---|---|
| Q1 2026 (Feb 17–Mar) | $39,140 | $20,000 | +$19,140 |
| Q2 2026 | $48,546 | $41,000 | +$26,686 |
| Q3 2026 | $22,607 | $35,000 | +$14,293 |
| Since inception | $110,293 | $96,000 | +$14,293 |
| Less: capital-reserve contributions (~$1,125/mo) | −$8,438 | ||
| After reserve contributions | $101,855 | $96,000 | 1.06× coverage |
Investing in the Resident Experience
A 1921 landmark keeps residents through its character and its service. This quarter we added two resident amenities, including the parcel lockers residents asked for most, and continued work to reduce the building's fixed costs.
Custom bike room
We built a secure, dedicated bike storage room for residents. In a close-in, bike-friendly part of downtown Portland, it is a practical everyday amenity, and it helps the building stand out when we show units.
Parcel locker system
Package handling was the most common resident request. A new parcel locker system is being delivered. It will reduce lost and stolen packages and take a daily burden off residents and our on-site team.
Trash re-bid, now billed back
The re-bid trash contract saves about $330 a month (~$3,960 a year), and trash costs are now included in the utility billback.
Moving to a new insurance provider
We are working on moving the property's insurance to a new provider. The new quote includes earthquake coverage, which matters for a building of this age and construction, and we are targeting a premium reduction of about $20,000 a year.
Elevator improvements · electrical modernization
We completed elevator improvements in August ($7,787, capitalized and paid from capital reserves). Electrical panel upgrades continue as units turn.
Recently turned units
Your Position — A Moment-in-Time Mark
This is an illustrative, point-in-time estimate of what the partnership's equity, and your stake in it, would be worth if the building sold today. It values the building on a chosen NOI and cap rate, repays the senior loan and the seller note, and then splits the remaining equity between investors and the GP. Change the inputs to test your own assumptions.
| Source | Amount | % of total |
|---|---|---|
| Senior loan (5.94%, interest-only initial period) | $4,100,000 | 62.7% |
| Seller note (5% simple, repaid at exit) | $900,000 | 13.8% |
| Common equity invested | $1,542,000 | 23.6% |
| Total capitalization | $6,542,000 | 100% |
| NOI basis | 6.50% cap | 7.00% cap | 7.50% cap |
|---|---|---|---|
| Trailing 6 months ($448,916) | $1,906,400 | $1,413,086 | $985,547 |
| Year-1 plan ($475,632) | $2,317,415 | $1,794,743 | $1,341,760 |
| Stabilized, underwritten ($591,765) | $4,104,077 | $3,453,786 | $2,890,200 |
How the split works
After the senior loan and the $900,000 seller note are repaid, common equity first receives its invested capital back. Any gain above that is split 75% to investors and 25% to the GP (the first promote tier). The underwriting includes higher promote tiers that only apply at higher realized returns over the full hold, so this mark uses the first tier. If the equity value is below invested capital, there is no promote, and investors share the full amount pro rata.The Path From Here
Q4 is about leasing up the building. We will fill the remaining vacancies through the winter, finish converting the rent roll to billbacks as leases roll, and complete the move to a new insurance provider.
Billback program: 29 leases on it, 10 more at spring renewals
Every new lease and renewal since August carries the utility billback. Ten leases renewed in early 2026, before the program was in place, convert at their next renewal (March–May 2027), which brings coverage to 39 of 54 leases. Monthly recoveries are growing.
Lease up to the mid-90s
With two approved applications, three other vacant units, and 507 plus two more notices turning over in October and November, we are targeting occupancy in the low-to-mid 90s by year end. Renewal offers are out to three more residents, and the four remaining pre-2026 leases will convert to the billback between January and March 2027.
Watch List
Turnover during the billback transition
A few more move-outs are likely as the last leases convert, but with fewer left to convert we expect turnover to slow from Q3 levels.
Unit 507 balance
One resident was served a for-cause termination notice for non-payment and vacated on October 1. The account carries about $3,000 unpaid, with no security deposit to offset it. We are pursuing collection. Apart from this account, rent collections remain strong.
Leak repairs and boiler warranty
We are pursuing the third-floor resident's renter's insurance for the September leak repairs; part of the cost is being funded from reserves in the meantime. Separately, the boiler warranty claim (about $8,000, disclosed in Q2) remains open. We will report both outcomes.