UNIVERSITY CROSSING OFFERING MEMORANDUM
4YHOUSING
4YHOUSING
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UNIVERSITY CROSSING OFFERING MEMORANDUM
TABLE OF CONTENTS Executive Summary: 05 Economics: Macro Trends 06 Area Description 08 Market Analysis 09 Risks & Challenges 14 Financial Analysis Appendix
Finance Team: Yotam Dankner, Michael Harvey, Brian Gabbay Concept Team: Angie Williams, Reece Satava, Sumner Billingsley, Mike Chumbley Market analysis: Surya Pulickal, Anqi Wang, Candice Wang Architecture: Luis Alfonso Yanez Rodriguez, Aboudi Kabbani, Maor Cohen
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UNIVERSITY CROSSING OFFERING MEMORANDUM EXECUTIVE SUMMARY Project Description:
Development Summary Address 500 Turk Street, San Francisco, CA 94102 Number of Units 94 Total Square Feet 90,744 Zoning RC-4 Height Limit 130 Ft Lot Size 18,905 SQF Dimensions 146 X 129.48 Parking Stalls 24
500 Turk Street offers the rare opportunity to develop student housing adjacent to University of California, Hastings College of the Law. Since it is a public university, it is dependent on the shrinking California education budget and competes against its fellow UC campuses for the limited resources. We see a rare opportunity to fulfill an unmet demand for San Francisco’s Financing & Exit Strategy student population. Our student housing product makes it doubtful that many students beginning law school or one of the other Equity: 70% LP: $8,159,148 institutions in the area will be in a position to purchase • • 30% GP: $3,469,778 homes. The per capita income is $76,601, and growth rate of 2.9% compares favorably to other gateway mar- Debt: Senior Lender: 70% Loan to Value, 82% Loan to kets. Additionally 50% of residents rent their homes. • Cost We are confident that we can attract students from sur• Fixed Rate of 2.75% rounding schools as well. • 3 Years of Development, 1 Year of Stabilization Prearranged Exit to a Cap Rate of 4.5-5%, 4Y expects to complete predevelopment for the op- • tioned site By June 15th 2014. After two years of con- benchmarked to CBRE Data Sale in Year 4 with transfer of preferential debt struction, we will begin the Social Media campaign. In • the fall and winter semesters, we will have an on campus facility advertising campaign. We will fulfill demand by open- Returns: Unlevered IRR: 10% ing our leasing office on May 2017. This will set us up • Levered IRR :32.5% for stabilized occupancy by the August 5th, when Law • • Equity Multiple: 2.08x students begin classes. Thereafter, we expect to sell the project to one of three REITs that operate in this space: American Campus Communities, Education Realty Trust, and Campus Crest Communities.
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4YHOUSING ECONOMICS: MACRO TRENDS SF Economics The U.S. economy has had a sluggish recovery with just a 2.2% growth in GDP last year. Policy conflict in Washington, friction in global markets, and concerns over national and European debt are expected to contribute to modest growth in the near future. While these issues persist, decreasing unemployment and private sector deleveraging have created a firmer foundation for improving real estate fundamentals. Because 4Y is expecting to sell our project to an institutional investor, we looked at the safer gateway markets of San Francisco and New York City. These markets benefit from supply constraints caused by downtown areas located on the waterfront. After the recession, multifamily has emerged as the strongest commercial property type in terms of overall demand and asset appreciation. We hope this market will mitigate risks of another downturn. Furthermore, residents mostly rent instead of own real estate. We have selected San Francisco because of political stability, current investment in transportation infrastructure, employment trends and favorable demographics. We anticipate Rent growth and price appreciation in the area from the flocking of the Gen Y demographic and a continued low cap rate environment. Infill property in the Tenderloin area of the city offers strong cases for development of student housing product because of relative value and stabile demand. Employment trends in SF & NYC 4Y wants to be in a safer gateway market where the housing option we offer is close to where people work and go to school. The Bay Area benefits from an established technology and venture capital community. Nearly one out of every five jobs in the Bay Area is in the technology sector, and over half of the Bay Area office workforce is considered part of the technology arena. While office jobs are down 4.1% in the Bay Area during the last three years, employment in technology has increased by 0.4%. Educational institutions such as Stanford, U.C. Berkeley and other small liberal arts colleges have a far stronger track record of commercializa-
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tion. Employment growth for the SF market is projected to be 1.5% year over year. By comparison, in New York City, which has a far less developed technology and venture community, employment growth is expected to be 0.6% year over year. Transportation Our project will take advantage of the trend of people living closer together in an urban environment. Existing Bay Area Rapid Transit, Cal Train, the Trans bay terminal as well as the new subway which is under construction from China Basin to Chinatown will provide long term value for the REIT we expect to sell to. This will make the negotiations upon sale easier and give us many options for recapitalization upon completion. Demographics San Francisco’s per capita income is $76,601, which is expected to grow at 2.9% in San Francisco. Some 50% of residents rent their homes. The primarily student housing product makes it doubtful that many students beginning law school or one of the other institutions in the area will be in a position to purchase homes. This is because students especially law students, generally have high levels of debt. For this reason, we think that this metric is somewhat mitigated. Population growth will be 0.8% per year for San Francisco. SF Politics Our Project is built as of right but still approvals are needed. In San Francisco, the city is allocates 700,000 Square feet for development annually. Because of the recent recession and lack of demand for entitlements, there are currently there are approximately 2 million square feet of available entitlements for the city. Most of this will be used for the Trans-bay terminal and as well as One Rincon Hill phase two. Neither of these completions creates adverse market conditions for our project. This is because they are so much closer to the downtown waterfront and further from UC Hastings Law School. Furthermore, San Francisco is a city with a weak mayoral process, such that mayoral turnover has a lesser effect on the development process. Because there are 11
UNIVERSITY CROSSING OFFERING MEMORANDUM districts and each of the districts have a much greater control over the developments in their respective districts. The City’s Master plan is primarily focused on smart development that utilizes transport-oriented development to maximize the use of density. Given the site’s access to public transport it will easily fit into the master plan and we are confident that the city will be swift in their approval SF Market Demographics
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4YHOUSING AREA DESCRIPTION Tenderloin surrounding amenities Today, new projects on Golden Gate are a sign of the neighborhood’s revival. The most compelling project is the historic restoration of the Central YMCA, one of the city’s great buildings. President Taft attended its groundbreaking in 1909, and it includes an historic theater and grand staircase within its walls. Other new projects include the soon to be occupied SFPUC building at Polk and Golden Gate, the long delayed 90 unit project at the former KGO site near Hyde, the opening of Philz Coffee at the corner of Larkin, and Maestro restaurant. According to Chef Neil Marquis, the Maestro Restaurant located in the long vacant restaurant space next to the SFPUC on Golden Gate was once the city’s hottest dining spot. The restaurant will be accompanied by an adjacent dessert café; that should prove popular with the Fashion School students now at the Academy of Art building on Turk and Polk. Plans to open the Uptown Tenderloin Museum at Eddy and Leavenworth are continuing, with architectural plans and design/ pre development already completed. The Museum will bring visitors into the core of the Tenderloin who will then patronize neighboring cafes and restaurants; it will also include a regular schedule of evening activities from music to dancing to lectures to gambling nights that will increase positive street activity at night. Nearby Vietnamese, Indonesian, Italian and Indian restaurants within walking distance are also contributing to a revival. They include: - Biscuits and Blues, Sugar Café, Canteen, Saigon Sandwiches - Chutney, Sai Jai Thai, Shalimar, Burmese Kitchen, A La Turka - Pakwan, Lahore Kahari, Farmer Brown, Thai House Express - Turtle Tower SF, Chabaa, Little Henry’s, Zingari ristorante - BoroBudur, Paglogic
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Night-clubs nearby include: Ruby Sky, Great American Music Hall, Infusion Lounge, Slide, the redwood room.
UNIVERSITY CROSSING OFFERING MEMORANDUM MARKET ANALYSIS Student Housing Market Overview University of California, Hastings College of the Law (UCHCL) Students are our primary target market. We can rely on on the shrinking California education budget and where UCHCL must compete against its fellow UC campuses for the limited resources. The majority of housing on public campuses across the US is funded by state budgets, which have been constrained due to budget deficits. A significant number of campuses are experiencing severe budget deficits due to loss of State tax revenues and no quick turnaround is expected. Decreased State appropriations force universities to prioritize their capital spending, which may lead to limited ability to upgrade aging on-campus housing. Tight public university budgets and substantial investment losses during the market downturn of endowment funds of private colleges have prompted increasing public and private partnership opportunities. According to the Wall Street Journal, several colleges have entered into public-private partnerships in recent years to develop or replace a portion of their student housing. Most recently, the University of Kentucky agreed to allow a private company to build and operate a new on-campus student dormitory.
According to surveys conducted by the National MultiHousing Council, school-owned housing facilities can accommodate approximately 30% of today’s total enrolled student population. The ratio is the same with UCHCL as well. The campus has an annual enrollment of 1100 students but the campus provides accommodation only for 300 students, i.e. 27% of the annual enrollment which is less than the national average of 30%. The percentage drops to 9% when we consider the total number of students at any time in the campus, which can be assumed to be 3 times the annual enrollment of 1100 i.e. 3300. If we assume that at least 50% of the annual enrollment decides to stay in or near the campus, we have a potential for absorption of 550 units annually, which makes it a reasonably good opportunity for investment. Table 2 below shows the existing rental rates charged by UCHCL and similar campuses in San Francisco. San Francisco is changing its rules for student housing. Worried that the city’s 14 postsecondary schools are pushing low-income individuals and families out of apartment buildings and residential hotels to provide beds for their students, the Board of Supervisors is looking to ban almost all conversions of existing residential space into student housing. New construction of student housing is encouraged.
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4YHOUSING Residential Market The Tenderloin is a historic district in San Francisco with a wide array of specialty shops and venues. Restaurants span all ethnic categories such as Middle Eastern, Thai, Vietnamese, Mexican, Turkish, Chinese and Italian. Public transportation is easily accessible and just a few short blocks away are the U.N. building, City Hall and the Civic Center public library. While on the residential side, we find more than 10 residential apartments in various conditions near our site – 500 Turk Street. Among all these residential properties, we picked 5 ones which we consider as suitable rent comparable that within 15 minutes walking distance to our site, and we also find out the conditions of these hotels and their rents for our reference. Comparables near Turk Street Carillon Tower, located at 1100 Gough Street. Carillon Tower offers great view from atop Cathedral Hill in the center of San Francisco. Each apartment has its own private demilune balcony that affords sweeping views of the city. There are amenities including gym and indoor swimming pool within this property.
at 378 Golden Gate Ave, San Francisco. It does not offer a lot of high-end amenities and the building condition is not as grand as Carillon Tower or the Hampton Building. Oasis Apartments locates at 351 Turk St San Francisco, and it is a well maintained yet not luxury residential apartments in the neighborhood. The average rent of one bedroom is $1,880, and the average rent of two bedrooms is $2,500. Since we decide to build student housing, and we want to be more competitive on the market and we are targeting students, we aim to set our rent 20% lower than the 1 bedroom average rent, and 10% lower than the 2 bedroom average rent. Besides the existing residential apartments in Tenderloin, there are new pipelines in this area have been recently completed and will be completed soon in near future. Within 15 mins drive from our site, there are 4 new multi-family projects including name/1401 Market Street, Potrero Launch Apartments, One Ricon Hill Phase II, and Madrone. In total, these four multi-family apartments are expected to deliver more than 1, 500 units to the market.
The Hampton Building, located at 631 O’Farrell Street. Like the Carillon Tower, this building offers various of service and utilities, including metropolitan living with 24-hour security, on-site maintenance staff, underground parking garage, a gym, bike racks, storage space for residents. Ellis Street Apartments located at 650 Ellis Streets. Compare with the above two apartment building, this property does not maintain as high level as the other two, and its rent is comparably lower. Similar to the Ellis Street Apartments, Hampton Court Apartment locates Table 2 Student Housing Rental Rates University Single Room Studio/Jr. 1-BR 1-bedroom 2-bedroom 3-bedroom Hastings Law $905-$1400 $1222-$1622 $2330-$3300 UCSF $682-$1002 $1099-$1434 $1534-$1865 $1840-$2950 $2869-$3024 UC Berkeley $949-$1116 $1034-$1069 $1,279 $1527-$1887 $1739-$1969
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UNIVERSITY CROSSING OFFERING MEMORANDUM Retail Market The average disposable income within 1 mile radius of our site is $38,310, and the local spending habits are between 40-50% of the Average US spending habits. When take an in-depth look at the retail marketplace profile of our site, we find out that while the neighborhood in Tenderloin is moving in a more balanced direction toward the provision of small produce markets, the retail in this party is mainly liquor store/mini-marts. Nearby large-scale retail is primarily regional serving. From industry summary, we find out that the Total Retail Trade and Food & Drink has a retail gap of $1,359,708,751, with a Leakage Factor of -26.8. The Total Retail Trade has a leakage of $917,467,502, with a Leakage Factor of -22.7. The Total Food & Drink has a retail gap of $442,241,249, with a Leakage Factor of -42.8. The Leakage/Surplus Factor presents a snapshot of retail opportunity, while a negative value represents a surplus of retail sales, a market where customers are drawn in from outside the trade area. And we see this as an opportunity to draw potential clients from other parts of San Francisco. The findings show that the additional provision of neighborhood-serving uses can help retain an estimated $1.3 billion in retail leakage out of the Tenderloin; meanwhile the low spending power of residents can be compensated for by the highest density numbers in the City. As ground-floor retail spaces are often difficult to properly tenant and more diverse retailers initially may be way of the Tenderloin location, subsidies and management may be needed to gain a healthy mix of uses. Right now, there are many retail spaces in this area are over supplied and used for non-profit offices, thus the retail part are failing to contribute to a safe and transparent street wall. Comparables for retail in Tenderloin The student housing market is closely tied to student enrollment and not necessarily to external factors such as economic growth and the unemployment rate. Since the market is primarily university students, demand is generated by enrollment factors and not market factors. This makes the student housing less volatile in comparison to other real estate sectors, making it an ideal choice
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4YHOUSING to improve diversification and lower market risk of a portfolio. According to Green Street Advisors, the longterm cash flow stream for student housing tends to be less volatile because demographics is the primary driver for higher education and not employment or other economic factors. The performance of a student housing index comprised of public REITs indicates that student housing has generally outperformed benchmarks through both downturn (2007- 2009) and recovery periods (2010-present) over the past five years. Table 2 below shows the total return comparison with NAREIT Apartment Index and S&P 500. Yields for student housing investments are generally 75-100 bps higher than those of comparable conventional apartments. The student housing investment provide an unlevered core return opportunity in the 7-9% range. Opportunities exist for all student housing investment strategies i.e. core, value-add, and development. A successful student housing investment generally tends to include the following elements: 1. Close relative proximity to universities that are experiencing enrollment growth, but with constrained budgets 2. Supply constrained/infill locations/ with high barriers to entry 3. New development or nearly new property with modern amenities 4. Safe, secure, well-priced, and professionally managed buildings with student amenities such as study lounges 5. Ideally with access to shopping, entertainment, and public transportation
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Table 3 Address 640-644 Polk Street Year Built 1928 Building Size 3,044 SF Smallest Space 280 SF Largest Space 280 SF Total Space Avail 280 SF Rent/SF/Yr $51.48 Lease 3-5 yrs Table 4 Address 855 Bush Street Year Built 1934 Building Size 3,000 SF Smallest Space 1,000 SF Largest Space 3,000 SF Total Space Avail 3,000 SF Rent/SF/Yr $42.00 Lease Negotiable
UNIVERSITY CROSSING OFFERING MEMORANDUM
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4YHOUSING RISKS & CHALLENGES Student housing like any other real estate asset class its own unique set of risks and operating challenges. These include a concentrated and cyclical leasing period generally from October to the following spring in a given year, higher maintenance than that of conventional apartments, and significant annual turnover. Therefore, we believe partnerships with experienced operators that thoroughly understand the asset class and the local market are critical. Compared to the conventional apartment market, the student housing market is uniquely characterized by the following factors: 1. Highly Fragmented Market: The student housing beds owned or managed by the eight largest student housing property managers account for less than 5% of the private student housing market combined according to a recent report by Student Housing Business. No single student housing firm or individual investor group controls in excess of 100,000 beds. The fragmented student market presents an opportunity for experienced regional and national operators to achieve greater operating efficiencies through increasing economies of scale and scope. 2. By-the-Bed vs. By-the-Unit Lease: By-the-bed properties have been popular for student apartments. Most by-the-bed properties are leased annually. When leasing by-the-bed, one person will sign each lease and will be responsible for the specific room and will also share responsibility for common areas. 3. Shorter Leasing Cycle: Most student housing is leased during a narrow window of time between fall and spring, which puts pressure on early marketing and leasing efforts to ensure a fully rented building when classes commence in the Fall term. 4. Higher Turnover Rate: Unit turnover is low during the academic year, but less than half of the students typically renew, creating high annual turnover that occurs in a concentrated period of time. 5. Development/Redevelopment: Development or redevelopment projects have a very narrow delivery window. If a project misses the beginning of the new school year (i.e. fall semester), it could potentially experience high vacancy until the next school year. 6. Management Intensive: Compared to conventional apartments, student housing presents significant
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operational challenges including high turnover, risk management issues, and intense marketing, which require a highly experienced operator. Often students are hired as on-site assistants to facilitate property management. Maintenance costs are normally greater for student housing. Management issues notwithstanding, feedback from student housing operators suggests that students tend to be more reliable than conventional tenants because parent co-signers provide consistent rent receipts and reduce credit risk. In many cases, rent payments are sent directly from the parents. The site location lends itself as a primary housing option for UC Hastings students that do not receive housing from the institution. As a resultant, we expect to see a large percentage of the student population come from Hastings. We are however, confident that we can attract students from surrounding schools including: Academy of Art, California College of the Arts, California Culinary Academy, University of the Pacific, Fashion Institute of Design and Merchandising and California Institute of Integral Studies. The institutions combined provide a large pool of students that are not living in student housing as depicted in the map below.
UNIVERSITY CROSSING OFFERING MEMORANDUM TARGET DEMOGRAPHIC
•Game/Billiard room •Walk in Closet The ages of the student population all fall within the •Fireplace age bracket known as Generation Y (born 1978-1995). •State of the art kitchen When looking at the two generations before them Baby •Sauna/steam room Boomers and Generation X, we studied the top 10 ame- •Gym/fitness room nities they would like to have in a home. Most of the •High Tech entertainment center desired amenities appear on the list across the three •Patios, porches and decks generations but the order has changed. Baby boomers desired a house to that validated your achievement of Of all the shared interests, given cost and site considthe American dream. The same sentiment was reflected erations, we chose to incorporate nice kitchens, game in Generation X, except there was a bit more empha- and entertainment centers as well as a gym. One of the sis on family and leisure space. With the integration of major characteristics of this generation is that they will technology, Generation Y desires residences that will never go anywhere without their cell phones and use it entertain them, with more social spaces and fitness cen- as a primary tool to function day to day. We intend to capitalize on the technology driven culture of Gen Y by ters. allowing features of the building to be controlled or accessed from smart phones including the following: Baby Boomers Born 1946-1964 • Recent advances in Near Field Technology •State of the art kitchen (NFC) have allowed for residents to access the building •Walk in Closet and their units from their cell phones. •Whirlpool bath • Smart Click is an app that allows residents to pay •Fireplace rent, report problems and other functions and can also •Swimming pool be set automatically through Facebook. •Workshop/hobby studio • Laundry View has been introduced at Brown •Patios, porches and decks University to allow for students to know when your •Garden laundry is done, what cycle it is in, and which machines •Game/Billiard room are available. •High Tech entertainment center Generation X Born 1965-1977 •State of the art kitchen •Walk in Closet •Fireplace •Whirlpool bath •Swimming pool •Patios, porches and decks •Game/Billiard room •Garden •Gym/fitness room •Workshop/hobby studio Generation Y Born 1978-1995 •Whirlpool bath •Swimming pool
Today, an increasing number of students are moving away from home for higher education. After experiencing dorm life for a year, many of these students decide to seek quality off-campus housing. This increase in demand has allowed several REITs to focus their business on building or managing portfolios of apartments near schools. The three REITs that operate in this space are American Campus Communities, Education Realty Trust, and Campus Crest Communities. American Campus Communities is the largest of the three owning 160 communities and managing 27 as well. They currently have a market cap of $4.58 billion and a yield of 3.08%. These REITs are poised to make big gains in the future.
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4YHOUSING Even with the rising cost of education, enrolment remains high and there will be a shortfall of 1.5 to 2 million off-campus student beds. As a result, these REITs are very active in purchasing or developing housing for students. In fact, last year three of the largest multi-family transactions involved student housing. Such activity in this space allows for one potential exit strategy of our property.
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UNIVERSITY CROSSING OFFERING MEMORANDUM DESIGN
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Supporting Documents: Why Multi: Cassidy Turley Multi family report, spring 2012 CBRE Multi Family Report 2012 http://www.zagat.com/sanfrancisco/tenderloin-restaurants
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UNIVERSITY CROSSING OFFERING MEMORANDUM
APPENDIX
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TAKE-OFFS Number of Units Gross Area
94 need to change this 90,400
SOFT COSTS $/GSF
$/Unit
Amount
% of Soft Cost Budget
Design Consultants Architecture
6.00%
Structural
2.00%
Mechanical
2.00%
Electrical
2.00%
Interiors
1.00%
Geotechnical
0.25%
Civil
0.25%
Survey
0.25%
Environmental Consultant/LEED
0.50%
Printing & Reimbursables
0.34%
$ $ $ $ $ $ $ $ $ $
14.83 4.94 4.94 4.94 2.47 0.62 0.62 0.62 2.21 0.83
$ $ $ $ $ $ $ $ $ $
14,264 4,755 4,755 4,755 2,377 594 594 594 2,128 798
$ $ $ $ $ $ $ $ $ $
1,340,787 446,929 446,929 446,929 223,464 55,866 55,866 55,866 200,000 75,000
18.09% 6.03% 6.03% 6.03% 3.02% 0.75% 0.75% 0.75% 2.70% 1.01%
$ $
0.25 0.50
1.00 1.00
240 481 962 962
$ $ $ $ $ $
22,600 45,200 90,400 90,400
0.30% 0.61% 0.00%
$ $
$ $ $ $ $ $
$ $
2.21 1.66
$ $
2,128 1,596
$ $
200,000 150,000
2.70% 2.02%
$ $ $ $ $
1.66 2.21 1.66 6.00 9.50
$ $ $ $ $
1,596 2,128 1,596 5,770 9,136
$ $ $ $ $
150,000 200,000 150,000 542,400 858,800
2.02% 2.70% 2.02% 7.32% 11.59%
4.94 7.42 4.94
$ $ $
4,755 7,132 4,755
$ $ $
446,929 670,393 446,929
6.03% 9.05% 6.03% 0.00%
81.99
$
78,847.74
$
7,411,687.19
Permitting Expediter
0.10%
Controlled Inspections
0.20%
Permits and Filing Fees
0.00%
Administrative Accounting
0.40%
Administrative Support
0.40%
1.22% 1.22%
Legal Fees Zoning Land Use
0.89%
Contracts, Financ. & Business
0.67%
Marketing Community Relations
0.67%
Marketing Materials/Ads
0.89%
Website
0.67%
Insurance
2.43%
Taxes
3.84%
Fees Acquisition Fee
2%
Developers' Fee
3%
Management Fees - Pre-Development
2%
$ $ $
32.77%
$
Operating Costs During Stabilization Soft Cost Total
$
1.00
HARD COSTS $/GSF
$/Unit
Amount
% of Hard Cost Budget
Site Construction
Demolition and Excavation Concrete Foundation Above ground Structure Masonry Exterior Walls Metals Misc Metals
$
1.00
$
962
$
90,400
0.40%
$ $
20.00 25.00
$ $
19,234 24,043
$ $
1,808,000 2,260,000
8.09% 10.11%
$
18.00
$
17,311
$
1,627,200
7.28%
$
6.00
$
5,770
$
542,400
2.43%
$
21.00
$
20,196
$
1,898,400
8.50%
$
9.00
$
8,655
$
813,600
3.64%
$ $ $
12.00 2.00 4.00
$ $ $
11,540 1,923 3,847
$ $ $
1,084,800 180,800 361,600
4.85% 0.81% 1.62%
$ $ $
2.00 3.00
$ $ $
1,923 2,885
$ $ $
180,800 271,200
0.00% 0.81% 1.21%
$ $
3.00 2.00
$ $
2,885 1,923
$ $
271,200 180,800
1.21% 0.81%
Woods and Plastics Carpentry/ Framing Thermal and Moisture Protection Roofing and Waterproofing Openings
Exterior Windows Exterior Doors and Hardware Interior Doors and Hardware Finishes Drywall (included in Carpentry) Painting Flooring Specialities Specialities Misc Appliances Furnishings
Built in cabinetry Dorm Furniture Lobby Furniture
$ $ $
2.00 2.00 0.15
$ $ $
1,923 1,923 144
$ $ $
180,800 180,800 13,560
0.81% 0.81% 0.06%
$
4.00
$
3,847
$
361,600
1.62%
$ $ $ $
18.00 7.00 15.00 2.00
$ $ $ $
17,311 6,732 14,426 1,923
$ $ $ $
1,627,200 632,800 1,356,000 180,800
7.28% 2.83% 6.07% 0.81%
$
13.00
$
12,502
$
1,175,200
5.26%
$ $ $ $ $ $
191.15 11.47 24.31 4.05 16.21 247.20
$ $ $ $ $ $
183,829 11,030 23,383 3,897 15,589 237,728
$ $ $ $ $ $
17,279,960 1,036,798 2,198,011 366,335 1,465,341 22,346,444
77.33% 4.64% 9.84% 1.64% 6.56% 100.00%
Conveying Systems Elevator
Mechanical Plumbing Fire Sprinklers HVAC Security Electrical Electrical Subtotal Hard Costs Contigency General Conditions Insurance CM Fee Hard Cost Total
6% 12% 2% 8%
22/04/2013 SF Student Housing 500 Turk Street, California
Purchase Info Square Feet Purchase Price Equity Debt
$ $ $
Construction Analysis Cost $ Equity $ Debt $
Loans LTV/LTC Loan Amount Term Interest Rate Payment
Loan Analysis Market Value - Loan Balance = Equity LTV
1
Senior $
$
$ $ $
Income Analysis (Year 3) Monthly Annual Per SF NOI $ 155,333 $ 1,863,991 $ Cash Flow $ 42,533 $ 510,394 $
90,403 6,591,900 2,677,308 36,350,031
Financial Metrics Going in Price per SF $ Return on Equity (Year 4) Gross Levered IRR (Year 4) Sale Price (Year 4) $ In Place Financing Premium $
29,758,131 8,927,439 20,830,692
Construction 70% 25,445,022 $ 30 Years 10 Bullet 2.8% 112,800
Year 3 42,842,201 $ -26,683,017 $ 16,159,184 $ 62%
Uses Acquisition Hard Costs Soft Costs Financing Total
350 104% 32.5% 44,308,541 6,015,660
82% -
Year 4 44,308,541 $ -26,171,008 $ 18,137,533 $ 59%
Year 5 45,822,492 $ -25,529,063 $ 20,293,429 $ 56%
Year 6 47,385,555 $ -24,869,241 $ 22,516,315 $ 52%
20.62 5.65
Year 7 48,999,278 -24,191,043 24,808,236 49%
$ $ 6,591,900 $ 22,346,444 $ 7,411,687 $ 699,738 $ 37,049,770
$ $ $ $ $
$/SF 350 1,186 394 37 1,967
% 18% 60% 20% 1.89% 100%
Sources $ Equity $ 11,604,748 Debt $ 25,445,022
$/SF $ 616.16 $ 1,351.02
Total
$ 1,967.17
$ 37,049,770
% 31% 69% 0% 0% 100%
22/04/2013 SF Student Housing 500 Turk Street, California First Operating Year Income Monthly Gross Rent $ Vacancy and Credit Loss$ Operating Income $ Expenses Monthly OPEX $
Total OPEX Net Preformence NOI - Loan Payment = Cash Flow
$
Expenses OPEX Total OPEX Income Analysis NOI - Loan Payment = Cash Flow Going in Cap Rate Cash Flow Market Cap Rate Cash on Cash Return Cash on Cash Return
$ $
$ $ $ $
Sale Analysis Equity $ - Selling Costs $ = Sale Proceeds $ + Cumulative Cash Flow $ - Initial Equity Investment$ = Net Profit $
2
66,571
Monthly $ $ $
Income Gross Rent $ - Vacancy and Credit Loss $ = Operating Income $
Annual $ $ $ Annual 66,571 $
228,767 6,863 221,904
$
Annual 155,333 $ 112,800 $ 42,533 $
2,745,200 82,356 2,662,844
Per SF $ $ $ Per SF
798,853
798,853
Assumptions 30.37 Occupancy Rate 0.91 Income Inflation Rate 29.46 Expense Inflation Rate Selling Costs 8.84
97% 1.03 1.02 2.5%
8.84
Per SF 1,863,991 $ 1,353,596 $ 510,394 $
Financial Metrics (Year 3) 20.62 OPEX Ratio 14.97 DSCR 5.65 Cash on Cash
30.0% 1.38 4.40%
Year 3 2,745,200 $ -82,356 $ 2,662,844 $
Year 4 2,827,556 $ -84,827 $ 2,742,729 $
Year 5 2,912,383 $ -87,371 $ 2,825,011 $
Year 6 2,999,754 $ -89,993 $ 2,909,762 $
Year 7 3,089,747 -92,692 2,997,054
Year 3 798,853 $ 798,853 $
Year 4 814,830 $ 814,830 $
Year 5 831,127 $ 831,127 $
Year 6 847,749 $ 847,749 $
Year 7 864,704 864,704
Year 3 3,461,697 1,353,596 2,108,101 52.51% 2,108,101 5% 18.2% 18.2%
Year 3 16,159,184 -403,980 15,755,204 2,108,101 -11,604,748 6,258,557
$ $ $ $
$ $ $ $ $ $
Year 4 3,557,560 1,353,596 2,203,963 53.97% 2,203,963 5% 37% 19%
Year 4 18,137,533 -453,438 17,684,095 4,312,064 -11,604,748 10,391,411
$ $ $ $
$ $ $ $ $ $
Year 5 3,656,138 1,353,596 2,302,542 55.46% 2,302,542 5% 57% 20%
Year 5 20,293,429 -507,336 19,786,093 6,614,606 -11,604,748 14,795,951
$ $ $ $
$ $ $ $ $ $
Year 6 3,757,511 1,353,596 2,403,915 57.00% 2,403,915 5% 78% 21%
Year 6 22,516,315 -562,908 21,953,407 9,018,520 -11,604,748 19,367,179
$ $ $ $
$ $ $ $ $ $
Year 7 3,861,759 1,353,596 2,508,162 58.58% 2,508,162 5% 99% 22%
Year 7 24,808,236 -620,206 24,188,030 11,526,683 -11,604,748 24,109,965
Value
$
44,308,541
New Loan I nper pmt
$
4.25% 30 217,971
Old Loan I neper pmt
2.75% 30 $ 112,800
New Payment $ Old Payment $ Saving $
1 2 3 4 5 6 2,615,657 $ 2,615,657 $ 2,615,657 $ 2,615,657 $ 2,615,657 $ 2,615,657 1,353,596 $ 1,353,596 $ 1,353,596 $ 1,353,596 $ 1,353,596 $ 1,353,596 1,262,060 $ 1,262,060 $ 1,262,060 $ 1,262,060 $ 1,262,060 $ 1,262,060
PV @7% NPV @7%
1,179,496 $ 1,102,332 $ 1,030,217 $ 962,820 $ 899,832 $ 840,964 6,015,660
Discount rate
$ $
7%
Sum Average
Number of Units Bed 54 Studio 22 18 94
Bath 1 1 2
1 2
Average SF 350 500 850 481
Other Retail
Rent Inflation PGR Vacancy & Credit Loss
6000
t1
t2
t3
t4
$
2,745,200 $ -0.03
1.03 2,827,556 $ -0.03
1.03 2,912,383 $ -0.03
1.03 2,999,754 -0.03
Rent $ $ $ $ $ $
1,800 2,200 3,000 199,600 2,123 350,000
Price Per SF $ 5.1 $ 4.4 $ 3.5 $
4.66
$
58.33
t5
t6
t7
t8
t9
$
1.03 3,089,747 $ -0.03
1.03 3,182,439 $ -0.03
1.03 3,277,912 $ -0.03
1.03 3,376,250 $ -0.03
t10 1.03 3,477,537 $ -0.03
1.03 3,581,863 -0.03
t0
t1
t2
t3
t4
Potential Gross Revenue PGR Growth PGR PSF Reimbursement Reimbursement PSF Vacancy and Credit Loss Effective Gross Revenue EGR Growth EGR PSF
$
2,745,200
$
$ $ $ $ $
30.37 -82,356 2,662,844
$ $ $ $ $
$
29.46
$
OPEX OPEX Growth OPEX PSF
$
-798,853
$
$
-8.84
$
NOI NOI Growth NOI PSF
$
1,863,991
$
$
20.62
$
1,863,991
t5 2,827,556 1.03 31.28 -84,827 2,742,729 1.03 30.34
$ $ $ $ $ $ $
t6 2,912,383 1.03 32.22 -87,371 2,825,011 1.03 31.25
$ $ $ $ $ $ $
t7 2,999,754 1.03 33.18 -89,993 2,909,762 1.03 32.19
$ $ $ $ $ $ $
t8 3,089,747 1.03 34.18 -92,692 2,997,054 1.03 33.15
$
$
3,182,439 1.03 35.20 -95,473 3,086,966 1.03 34.15
$ $ $ $ $
-814,830 $ 1.02 -9.01 $
-831,127 $ 1.02 -9.19 $
-847,749 $ 1.02 -9.38 $
-864,704 $ 1.02 -9.56 $
-881,998 1.02 -9.76
$
1,927,899 $ 1.03 21.33 $
1,993,884 $ 1.03 22.06 $
2,062,012 $ 1.03 22.81 $
2,132,350 $ 1.03 23.59 $
2,204,968 1.03 24.39
$
1,927,899
$
1,993,884
2,062,012
2,132,350
2,204,968
$
44,308,541
-1,107,714 $ 45,128,726 $ 10,642,686 $ 124.2%
1,993,884 12,636,570
Leasing & Capital Cost Unlevered Operating CF Cash On Cash Sales Proceeds Purchase Price Construction cost Cost Of Sale Unlevered Cash Flow Cumulative CF Cash on Cash Peak Equity Unlevered IRR Unlevered Profit
$
-6,591,900
$ $
$ -14,879,066 0 -6,591,900 $ -14,879,066 -6,591,900 $ -21,470,966
$ -36,350,031 9.77% $ 10,642,686
$ -14,879,066 $ -14,879,066 $ -36,350,031
$ $
$ 1,863,991 $ -34,486,041 $ 5.1%
$
$
$
Unlevered Cash Flow Cumulative CF Debt Service Debt Funding Debt Service Fees Bullet Total Debt Service
$ $ $
t0 -6,591,900 $ -6,591,900 $ 4,614,330
$
-
$
-
$
t1 t2 -14,879,066 $ -14,879,066 $ -21,470,966 $ -36,350,031 $ 10,415,346
0
$
t3 1,863,991 $ -34,486,041 $
10,415,346 $
-1,353,596
$
-1,353,596
0 $
-1,353,596
$ $
-26,171,008 -27,524,604
$
6,015,660
510,394 $ -10,394,615 $ 4%
23,619,782 13,225,167 204% 104%
In place Finance Premium Levered Cash Flow Cumulative Levered CF Cash on Cash Return on Equity DSCR Levered IRR Levered Peak Equity Levered Profit
$ $
-1,977,570 -1,977,570
$ $
-4,463,720 $ -4,463,720 $ -6,441,290 $ -10,905,009 $ -38% -38%
1.38
$ $
32.5% -10,905,009 13,225,167
t4 45,128,726 10,642,686
Unlevered Cash Flow Cumulative CF Debt Service Debt Funding Debt Service Fees Bullet Total Debt Service Levered Cash Flow
$ $ $ $ $ $ $ $ $
1 -14,879,066 -21,470,966 10,415,346 -4,463,720
Capital Contributed 3,481,424 8,123,324
30% 70%
$ $ $ $ $ $ $ $ $
IRR
GP LP Total
Distribute to 15% Hurdle
$ $ $ $ $ $ $ $ $
2 -14,879,066 -36,350,031 10,415,346 -4,463,720
$ $ $ $ $ $ $ $ $
3 1,863,991 -34,486,041 -1,353,596 -1,353,596 510,394
$ $ $ $ $ $ $ $ $
4 45,128,726 10,642,686 -1,353,596 -26,171,008 -27,524,604 23,619,782
32.5%
Hurdle 14% 15% 18% 21%
Pref
IRR Calculation to Pref % Cash to Distribute Cash to Distribute Equity Cash Flow IRR
0 -6,591,900 -6,591,900 4,614,330 -1,977,570
$
-1,977,570 $ 14%
11604748
Split 70/30 60/40 50/50
-4,463,720
$
-4,463,720
$
510,394
64% $ 15,166,444.72 $ 15,166,445
64%
Cash Remaining to Distribute % Cash to Distribute Cash to Distribute Cash to Distribute -- Promote Cash to Distribute -- Equity Equity Cash Flow IRR
Distribute to 18% Hurdle Cash Remaining to Distribute % Cash to Distribute Cash to Distribute Cash to Distribute -- Promote Cash to Distribute -- Equity Equity Cash Flow IRR
Distribute above 21% Hurdle Cash Remaining to Distribute % Cash to Distribute Cash to Distribute Cash to Distribute -- Promote Cash to Distribute -- Equity Equity Cash Flow IRR Promote TOTAL EQUITY CASH FLOW LP Investor GP Investor GP return with the Promote
$
-1,977,570 $ 15.0%
$
-4,463,720
$
510,394
$
$
-1,977,570 $ 18.0%
-4,463,720
$
-4,463,720
$
510,394
$ $ $ $
7,126,725 43% 3,088,164 1,852,899 1,235,266 16,799,694
$
-1,977,570 $ 22.7%
-4,463,720
$
-4,463,720
$
510,394
4,038,561 100% 4,038,561.07 2,019,280.53 2,019,280.53 $ 18,818,975
$ $ $ $
-1,977,570 -1,384,299 -593,271 -593,271
-4,463,720 -3,124,604 -1,339,116 -1,339,116
$ $ $ $
-4,463,720 -3,124,604 -1,339,116 -1,339,116
$ $ $ $
510,394 357,276 153,118 153,118
$ $ $ $
Equity X LP GP
-4,463,720
$ $ $ $
$8,453,337 16% 1,326,612 928,628 397,984 15,564,428
$ $ $ $ IRR
1.77 3.24
23% 51%
18,818,975 13,173,282 5,645,692 10,446,500
23% 50.7%