Response to RFP - April 20, 2015 by Katya Hristova

BIRMINGHAM, AL

APRIL 26, 2015

WOODLAWN DEVELOPMENT RFP RESPONSE

GROUP D PROPOSAL Prepared for Woodlawn United

TABLE OF CONTENTS

SECTION 1

EXECUTIVE SUMMARY………………………………………………………………………………………………………………………..SECTION 2 CONCEPTUAL MASTERPLAN…………………………………………………………………………………………………………………SECTION 3 Project Description Proposed Masterplan - Site Plan, Program, Functionality Retail Component Massing - Exterior Views, Schedule of Materials Technical Diagrams: Circulation and Services, LEED Checklist CASE STUDIES…………………………………………………………………………………………………………………………………..SECTION 4 Case Study: Virginia Highlands, Atlanta GA Case Study: Roosevelt Area, Chicago IL Case Study: Dudley Square, Boston MA MARKET ANALYSIS…………………………………………………………………………………………………………………………….SECTION 5 History and Infrastructure Market Conditions – Market Demand, Rental Rates and Leasing Structure, Market Indication, Market Potential – Retail, Market Potential - Housing FINANCIAL ANALYSIS………………………………………………………………………………………………………………………....SECTION 6 Executive Summary Financial Analysis - Project Cash Flow Pro Forma, Sources and Application of Funds, Debt Assumptions, Income- Rent Rolls, Tax Sharing, Expenses, Sales/ Reversion, Partnership/ Capital Stack Proposal Feasibility Analysis - Physical Description, Legal, Financial Analysis – Land Residual Technique CONSTRUCTION SCHEDULE…………………………………………………………………………………………………………………..SECTION 7 Project Timeline –Phasing, Schedule

Mr. Ben Wieseman

Ben Wieseman, RFP

Dear Mr. Wieseman,

EXECUTIVE SUMMARY

SECTION 2

Woodlawn AL is a place of history and strong community spirit, currently in transition, positioned on the edge of revitalization and future economic growth. Its proximity to the Birmingham downtown, the airport, and major highway and road infrastructure make the neighborhood ideal for commercial, retail redevelopment. With a few improvements, such as redesign of the main street, improved community interaction and connectivity, increased safety and enhanced walkability, the existing neighborhood can transform into a vibrant, financially thriving, successful place. There are other successful examples of areas in transition that we learnt from, to name a few: Virginia Highlands in Atlanta GA, Roosevelt Area in Chicago IL, Roxbury Square in Boston MA. They offer insights of various elements of effective public private partnerships that lead to boosted revenues and increased investor interest in the area. We incorporated into our proposal, as we visited and understood, the importance of retail in neighborhood revitalization in Virginia Highlands, the significance of utilizing city incentive programs in the Roosevelt Area redevelopment, and the impact of preserving the character and identity of a neighborhood, such as Roxbury Square. We started by looking at the current market conditions for Woodlawn. The median household income of $22,090 per year (within one-mile radius from Parcel D) can be considered below the poverty level, as it is 30% less than the overall Birmingham median household income. However, in 2014, the Retail Trade ranked fourth among the most important economic base sectors in Birmingham, demonstrating that the retail sector has a strong position in the Birmingham market. And so, we concluded that to revitalize the neighborhood we could provide additional retail space, which will increase tax revenue base and improve the quality of Woodlawn, leading to investments in infrastructure and increased property values. We evaluated that the potential total retail demand is around $11M, considering the total population of 35,542 people within three-mile radius of the site. Next, we acknowledged the current zoning regulations and it became obvious that, in order to have a financially viable development, we needed to acquire the three adjacent lots. We arrived at 1.4 acres of land, supporting 16,330 gsf of retail space and 64 parking spaces. We are proposing a development that fits within the scale and functionality of the existing commercial retail along 1st Ave while simultaneously supporting the residential sector along 59th street. We calculated that the total development cost to complete Parcel D development is $2.7M. This includes the construction of 8 retail spaces and a tenant common area for $167/sf. With a net operating income of $180,547 for the first operating year, we calculated a going-in cap rate of 6.6% and average cash on cash yield of 7.5%. We structured a financial model, based on a 10-year holding period, beginning January of 2017. As part of the financial model, we included rent roll and sales escalation of 1.5%, which is based on the current US inflation rate. The overall project IRR is estimated at 6.1% with the investorâ&#x20AC;&#x2122;s IRR at 7.8%. We assumed that Woodlawn United would take the role of the sponsor. Since Woodlawn neighborhood currently experiences difficulties in boosting revenues and attracting investors, we are proposing a preferred investor partnership model, thus making the investment more attractive for private investors. We believe, the development of parcel D is financially feasible, because we are using $10/sf of rental rate and the hurdle rental rate of the development is $7.97/sf. The average market rent for Woodlawn is $11.10/sf., which is 11% higher than the rate used in the pro forma and therefore we are allowing 11% room for error on our assumptions. Woodlawn Retail Center can serve as the prototype for any future development in the area. By providing a sustainable, engaging, safe and open to the public facility, we believe the redevelopment of parcel D can provide the impetus towards a renewed and improved Woodlawn neighborhood. It can alter the reality of the current economic status quo by creating new jobs, encouraging local businesses and mostly, by bringing the community together.

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CONCEPTUAL MASTERPLAN

SECTION 3

PROJECT DESCRIPTION Woodlawn, AL has a strong community spirit and history that spans over two hundred years. It is a logical extension of the Birmingham downtown and as such carries a great opportunity for unrealized economic success. However, the community of Woodlawn faces problems of aging housing stock, joblessness and poverty that have taken over the area. We think that addressing the following civic elements will help revitalize the area.

 Main Street Scale and Functionality Parcel D abuts 1st Ave to the north and as such, has a tremendous potential for passers- by traffic that can provide significant sources of revenue for any retail component on both sides of the street. It is essential that the scale of 1st Ave be altered to welcome pedestrian traffic and encourages interaction. We think that parallel and 45 degree parking can be provided along the two sides of the roadway, as well as an abundance of green space separating the car-oriented space and the pedestrian space.

 Community Interaction and Accommodation Woodlawn residents can benefit from further integration of public and private space. Residents waiting for public transportation could be better accommodated. The lack of seating area and defined bus stops create unsafe conditions for the local residents and depresses pedestrian traffic. We think that integration of park space, public transportation seating, and other amenities can be part of the solution to revitalize the area. We are proposing to interlace public spaces, designed to activate the neighborhood, most hours of the day, and enhance the safety and wellbeing of Woodlawn residents. By doing so, we are aiming to rebuild the local retail and improve the merchandise mix and lease productivity.

 New and Sustainable Building Stock The current retail building stock is aging and as a result, it does not compliment its usage. Retail space is insufficient and it does not have the necessary components to foster a successful business environment. Newer, modern, sustainable buildings are in need to facilitate further development of the Woodlawn business district. We are proposing LEED certified facilities that improve the surrounding environment and contribute to the overall reduction of carbon footprint. We have incorporated photovoltaic panels on bus shelters, rainwater retention pond and impervious surfaces, that allow for easier water seepage.

 Preserving History and Civic Scale We believe that the Woodlawn community possesses scale, diversity and heritage that should be preserved and serve as a precedent for any future development in the area. We think that preserving these features and building upon them will provide for the best symbiosis between existing and new. Our proposal is rooted in the smaller and human scale of the existing buildings as well as the variety of color and uniformity of the materials utilized in the area.

Our approach to the new esthetic and design of Parcel D is illustrated in the section below. We think that with the help of the city of Birmingham and Woodlawn United, we can create a vibrant, safe, financially thriving, successful development.

PROPOSED MASTERPLAN  Site Plan We are proposing acquiring three lots adjacent to Parcel D. In order to make the site financially feasible, we think additional land is needed to satisfy current zoning regulations, which dictate 250 to 1 ratio. (250sf of retail space to 1 parking space). We are acknowledging the additional cost of acquiring three more parcels. Please refer to Section 6 of the Proposal. We believe that the current tenants, occupying the adjacent parcels have strong desires to sell.

Project North

 Building Program Tenant Space Type 1: 10, 800 NSF Tenant Space Type 2: 3, 730 NSF Tenant Space Type 3: 1, 500 NSF Common Area: 300 NSF

1st Ave

Total Buildable Area: 16, 330 NSF Total Leased Area: 16, 030 NSF We are proposing reduction of traffic lanes on 1st Ave with parallel parking on north side of the street and 45 degree parking on the south. We are proposing three main lanes (two running the opposite direction and one turning lane) with green separation area in the middle. Tenant Space Type 1 comprises of 3,600 NSF per retail unit and it is envisioned to house larger national retail stores and restaurants. Tenant Space Type 2 comprises of 1,250 NSF per retail unit and it is designed as an incubator space for local retailers. Tenant Space Type 3 comprises of 750 NSF per unit and it is situated to support the open space and outside seating area. We think that this space can be occupied by coffee shops or lunch serving restaurants. Project North

Image Not To Scale

Tenant Space Type 1 is considered prime leasing space and it is positioned along First Ave. It fits within the scale and functionality of the existing commercial retail along the larger route. Tenant Space Type 2, much smaller in scale and leasing cost, is serving the existing residential neighborhood along 59th street.

 Site Functionality

Project North NTS

1. Parking The city of Birmingham zoning regulations (page 123 of the zoning code) state that every 250 feet of rentable area require one dedicated parking spot. We are proposing 16,030 leasable area and 64 parking spaces, of which 5 are handicap accessible and 1 is van handicap accessible. 2. Community Interaction Area We think that it is important to provide outside recreational area that service the restaurant component of the retail space. This area could be accessed throughout the day and it will serve the community, providing gathering space to encourage social interaction. 3. Water Feature As part of the LEED certification of the retail center, we are proposing a rainwater collection system with an underground tank. We would like to exhibit this feature in a still water basin surrounded by community interaction space and greenery. 4. Bus Shelter We think that proper accommodation of residents, development of APTA in the area. The UV panels night.

utilizing public transportation, can encourage further on the roof could generate enough power to supply lighting at

5. Outside seating area In order to increase safety, we think, it is important to encourage the public presence on the streets. By providing outside seating area along the back alley, we attempt to turn once disadvantaged and dangerous location into a safe and inviting space. 6. Children Play Area As part of the revitalization efforts, we propose reasons. This can bring additional pedestrian traffic and further revenues.

a children play area, internal to the site boundaries for safety increase the interest in the area, thus increasing retail

*Please note that features 2, 4, 5, and 6 are not included in the proforma since they are free and open to the public.

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RETAIL COMPONENT MASSING  Exterior Views

We took the following approach in selecting exterior materials for this project: First, we looked at the overall design concept and chose materials that complement each other and are appropriate for the usage of the retail facility. (Ex. Entrance canopy, oversized entrance doors, clear glazing for display, lighting). Second, in order to make the project financially viable, the exterior materials are selected to fit within a set construction cost per square foot. Therefore, some of the preferred original materials were substituted for their generic equivalent. (Ex. Unitized Curtainwall System was substituted for Stick Built Storefront System.) That way, we eliminated the value-engineering phase of the project and shortened the design phase by 2 months. Third, we chose materials that contribute to the LEED Silver certification of the development.

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 Schedule of Materials

NORTH ELEVATION

NTS

EAST ELEVATION

NTS

Key Legend: 1. Exterior Grade Wood Siding (Finish: Native to AL) 2. Precast Concrete Panels, 3. Canopy: Painted Steel, Welded C-Shape Channels, 4. Living Wall (Green WallIvy) 5. Wood Bench, Clear Stain, (Wood Species Native to AL) 6. Cast in Place Concrete 7. Thermally Broken Storefront System with Integrated Display Lighting 8. Low E Glazing 9. Brick Veneer (Color TBD) 10. Cast in Place Textured Concrete Sill (Formwork Texture TBD) 11. Indigenous vegetation

TECHNICAL DIAGRAMS  Circulation and Services

 LEED Checklist Based on the initial LEED application, the project qualifies for LEED Silver certification. Further development of the design will assess if the development can be Gold certified. The project qualifies for 59 points on first take and could potentially obtain 9 additional points. However, any additional efforts will increase the scheduled construction cost and decrease the targeted internal rate of return. We think that Silver certification is appropriate for this type of development and it will greatly improve the area, while educating the community about the benefits of sustainable design.

CASE STUDIES

SECTION 4

CASE STUDY: VIRGINIA HIGHLANDS, ATLANTA GA  Importance of Retail in Area Revitalization

Total Area: 0.95 sq. mi, Population: 7,800

Virginia Highlands, a neighborhood in Atlanta, is used as a precedent for the Parcel D Proposal. We utilized a similar approach by taking advantage of 1st Ave and created an engaging retail strip. The idea was to create an extension of the already existing retail along this high traffic road by connecting to Birmingham downtown and other intermediate retail. Virginia Highlands is similar in scale and functionality. It encompasses a wide range of retail, including small local shops and restaurants, and outside seating areas. The development encourages pedestrian traffic and offers multiple “hangout” locations with recreational settings. Much like Parcel D redevelopment, Virginia Highlands is invigorating, stimulating and offers a new and improved main street with parallel and 45 degree parking along the arterial road. There is a clearly defined green belt separating pedestrian traffic from vehicular traffic. The scale of the street allows for easy and safe cross over from one side to the other and thus increases retail revenues by enhancing pedestrian traffic. Virginia Highlands had followed a similar historic progression as Woodlawn. In the 1960s, the area started declining with residents moving out to the suburbs. As a result, redevelopment of single-family homes into apartments occurred, followed by increased crime. A decade later, this sequence was reversed and single-family homes were renovated with middle class residents moving back to the area. Home ownership levels rose 20 % and property values increased 20% in 1972 up to 50% in 1975. One of the factors that contributed to the success of the neighborhood was the "Corner Virginia-Highland", an area with shops on the northwest corner, developed in 1925, and later renovated in the 1980s. This retail node at the corner of North Highland and Virginia Ave, is the neighborhood's namesake and main shopping and dining area. It has been well known since the 1990s for its restaurants and outside seating area. We believe, the success of the retail is primarily due to its location and the mixture of retail and residential neighborhood components. North Highland is a vital avenue in Atlanta and has “four distinct commercial nodes separated by the primarily single family neighborhoods of Virginia-Highland and Morningside-Lenox Park.” In 1987, The New York Times featured Virginia Highland as “one of Atlanta's most diverting neighborhoods, and a nice place to wander on spring evenings.”

CASE STUDY: ROOSEVELT AREA, CHICAGO IL  Importance of City Incentives in Area Revitalization

Total Area: 212-acre, TIF district, Designation: 1998, Expiration: 2022

The renovation of the Roosevelt Area in Chicago, IL was achieved primarily by the Tax Incremental Financing (TIF), which the city initiated to revitalize the area. It was published on the city website that: “The goal is the redevelopment of the area as a functional, clean and attractive mixed-use and mixed-income residential neighborhood with convenient commercial service enterprises. Priorities include infrastructure upgrades, the rehabilitation of existing structures, the creation of new residential units, new public housing structures, and new business facilities.” To guarantee the success of the redevelopment, local residents and community leaders joined forces together to assemble a new metropolitan design that would improve on the mistakes of the past "urban renewal" attempts. Roosevelt area is the oldest and it has the largest concentration of public housing structures in Chicago, the socalled ABLA Homes. The idea was to transform the “ABLA in 12 different unit types including live/work, townhouses, and apartments over ground-floor retail. The plan included the construction of 3,000 housing units, occupied by a wide range of socio-economic residents, some of whom will experience the opportunity for first home and business ownership.

The Roosevelt/Homan TIF, set up as part of the Roosevelt area revitalization program, was intended to assist with redevelopment costs associated with infrastructure, land acquisition, site improvements, and other interest costs. The TIF had a 4.9 to 1 ratio of private to public investments and its assessed value has grown 320% since its origination, demonstrating its strong success in spurring economic growth within the neighborhood. The keys factors, contributing to the success for the Roosevelt Area redevelopment are the collaboration between local residents and community leaders, and the TIF incentive program, put in place to facilitate the project. These same key factors were considered in the redevelopment proposal for Parcel D. We believe that with the support of the local residents and the approval of the municipal leaders, along with a Sales Tax Sharing program in place, crucial to the financing of the project, we could guarantee the success of the Parcel D redevelopment.

CASE STUDY: DUDLEY SQUARE, BOSTON MA  Importance of Preserving the Character and Identity of a Neighborhood in Area Revitalization Dudley Street Neighborhood Initiative (DSNI) in Roxbury, a neighborhood of Boston, MA is the major force behind the stabilization and restoring of the Dudley Street Community. Contrary to the general beliefs that gentrification is the most effective way of revitalizing an area, DSNI achieved that without any substantial influx of more affluent residents. It is a perfect example of how preserving the character and identity of a neighborhood can lead to “some low-income areas might remain essentially low income but with improved access to services and opportunities.” (Medoff and Sklar -1994). The DSNI was formed in 1984 when residents of the Dudley Square put efforts together to revive and protect their neighborhood from the devastation by arsons, disinvestment, neglect and redlining practices from outside speculators. As Medoff and Sklar point out, this initiative led to the “spending power per acre is comparable with the rest of the Boston despite a 21 percent lower average household income.” Much like DSNI, Woodlawn United’s main goal for Woodlawn neighborhood “…focuses solely on the shared vision of Woodlawn United partners and works to: improve communication among partners, eliminate duplication of efforts, and leverage resources.” We believe that with the help of the Woodlawn Foundation and Partners, the neighborhood has the potential to become a vibrant, safe, financially thriving, successful place. We envision an area, distinguished by its stabilized retail market, with great potential for creating new employment opportunities and attracting private investments, which will contribute to increased tax revenues, property values and will strengthen the identity of the community.

MARKET ANALYSIS

SECTION 5

HISTORY and INFRASTRUCTURE  Neighborhood During the 20th century Woodlawn was “a really great section of Birmingham. A section typical of the fine things in life.”1 Today, it is predominantly a low-income neighborhood that has been in decline since the 1970s. It is characterized with joblessness, poverty and property deterioration. The revitalization of the neighborhood will potentially bring the necessary economic growth that the area needs. Currently, the median household income of $22,090 per year (within one-mile radius from Parcel D) can be considered below the poverty level. It is 30% less than the overall Birmingham median household income.

However, the proximity to major highways, airport and a railway stop provide for a superior location, in terms of infrastructure. Parcel D is located along 1st Avenue and offers main street frontage, appropriate for retail development. It is a nexus between the larger scale of the commercial strip and the residential environment. Parcel D is located within the limits of Woodlawn community and therefore has existing connections to city sewer, water and electricity.

http://en.wikipedia.org/wiki/Woodlawn_%28Birmingham%29

MARKET CONDITIONS  Market Demand The proposed development for Parcel D, can alter the reality of the current economic status quo by creating new jobs, encouraging local businesses and mostly, by bringing the community together. Considering the total population of 5,743 people within one-mile radius and 35,542 people within three-mile radius, the potential total retail demand spans between $7.3M and $11M for all retail tenants. (Refer to Table 1)

Demand 1 Mile Population (A) Households Median Household Income Total Household Income (B) Potential Income per Person (B/A) Site Trafic % of Income in Retail Demand of Retail 1 Mile Demand 3 Miles Population Households Median Household Income Total Household Income

Potential Income per Person (B/A) Site Trafic % of Income in Retail Demand of Retail 3 Miles

2014

$ $ $

5,743 2,088 22,090 46,123,920 8,031 6,400 14.4% 7,399,468

2019

$ $ $

2014

$ $ $ $

35,542 13,966 26,568 371,048,688 10,440 6,400 14.4% 9,618,384

5,769 2,099 25,425 53,367,075 9,251 6,400 14.4% 8,522,872 2019

$ $ $ $

35,797 14,095 30,385 428,276,575 11,964 6,400 14.4% 11,022,771

Increase 0.5% 0.5% 15.1% 15.7% 15.2%

15.2% Increase 0.7% 0.9% 14.4% 15.4% 14.6% 14.6%

Table 2 -‐ Demand

Name Smooth Cuts Pool & Bar Shop Bullet Iron McDonald's R & F Inc Pacific Seafood Vet-Co Inc City Meats & Vegetables

Address 5831 1st Ave N 5812 1st Ave N 5810 1st Ave N 5904 1st Ave N 5612 1st Ave S 6021 1st Ave N 5544 1st Ave S 5535 1st Ave N

Annual Sales $ 700,000 $ 596,000 $ 236,000 $ 3,900,000 $ 382,000 $ 400,000 $ 1,674,000 $ 540,000

Table 1 – Sales Comparable

Judging by examples in the actual marketplace, which lack street walkability and infrastructure, it is evident, that some of the existing retailers, with close proximity to Parcel D, have higher annual sales (See Table 2). This fact alone proves that there is strong potential for retail use on the site.

• Rental Rates and Leasing Structure Based on information provided by ARC Realty, we conducted a preliminary study to evaluate the area current rental and leasing structures. The table below summarizes our findings. We concluded that the current rental rates range between $10.00sf to $18.50sf. However, the seven properties that were compared vary in size and location. In order to determine an appropriate retail rental rate to be utilized in the Parcel D financial feasibility analysis, we applied a location-weighing factor, arriving at $11.10 per square foot as average retail rental rate.

Retail Rent Comparison - Birmingham, AL 5 Points/UAB

CBD/UAB

Hillcrest Shopping Center

Greensprings Center

Roebuck Market Place

401 Crestwood Blvd Retail 4,100 SF 14.40 NNN 5 years

The Station at Grants Mill 5401 Beacon Dr Retail 6,495 SF 10.00 NNN 3-5 yrs

1909 11th Ave S Retail 2,765 SF 17.50 NN 5 Yrs

60 14th St South Retail 13,209 SF 18.50 NNN 5 yrs

104 Greensprings Hwy Retail 11,000 SF 12.00 NNN 3-5 yrs

430 Greensprings Hwy Retail 3,600 SF 13.50 NNN 5 yrs

9120 Parkway East Retail 12,509 SF 16.00 NNN 3-5 yrs

20%

35%

20%

10%

Adjusted Rent/Sq.Ft.

$11.52

$8.00

$11.38

$12.03

$9.60

$10.80

$14.40

Price Per Square Foot Low: High: Average: Median:

$8.00 $14.40 $11.10 $11.38

Location Address Use Size (SF) Available Actual Rent/Sq.Ft. Expenses Structures Typical Leased Term Total Annual Sales WEIGHTING FACTOR Location Adjustment

Crestwood

 Market Indication According to the FDIC, Retail Trade ranked fourth place among the most important economic base sectors in Birmingham, AL in 2014. This demonstrates that the retail sector has a strong position in the Birmingham market. By providing additional retail space, the neighborhood would be able to increase its Tax revenues, which will contribute to the investment in future infrastructure, leading to increase in property values. That way, it will increase the quality of the Woodlawn district.  Market Potential - Retail

 Market Potential – Housing

Further investment and development of the residential sector is crucial for the support of the retail space. In 2014 the Woodlawn Foundation commenced the efforts to establish a healthy mix of housing. The idea was to build upon the higher quality affordable units, developed by the YWCA. Phase 1 of the proposal includes 64 townhomes in The Parks at Wood Station. 2 In Woodlawn the average home price is $21sf and the rental market is $550 per home. In Birmingham, on the other hand, the average home price is $58sf and the rental market is $979 per home.3 The revitalization of Parcel D together with the aforementioned development can further reduce the price gap between the two market areas.

According to the STDB, the eight Industry Groups, stated in Table 3, have higher than average Retail Gap. This statistics suggests that there is a potential market for these particular uses in Woodlawn. These types of uses together with a targeted consumer (approximately 35 years of age, has a family and lives between one and three miles of Parcel D) represent the market potential for the site.

Industry Group Furniture Stores Electronics & Appliance Stores Lawn & Garden Equip & Supply Stores Food & Beverage Stores Grocery Stores Shoe Stores Jewelry, Luggage & Leather Goods Stores Electronic Shopping & Mail-Order Houses

Demand Supply (Retail (Retail Sales) Potential) $622,138 $0 $1,297,928 $167,999 $230,135 $0 $5,739,031 $3,804,865 $5,403,741 $3,356,815 $355,424 $0 $407,038 $0 $1,858,586 $0

Retail Gap

Leakage/Surplus Factor

$622,138 $1,129,929 $230,135 $1,934,166 $2,046,926 $355,424 $407,038 $1,858,586

100.0 77.1 100.0 20.3 23.4 100.0 100.0 100.0

Table 3 – Retail Potential

http://www.woodlawnunited.org/housing/

http://www.realtor.com/local/Woodlawn_Birmingham_AL/lifestyle

FINANCIAL ANALYSIS

SECTION 6

EXECUTIVE SUMMARY In order to conduct the feasibility portion of the project, we structured a financial model based on a 10-year holding period, beginning January of 2017. Our financial projections are based on the market verified assumptions, through STDB, as described on page 11, Section 3 of this report. We are proposing that the rent roll and sales have an annual escalation of 1.5%, and be based on the current US inflation rate, excluding the Sales Tax Sharing Incentives as part of the cash flow analysis depicted on page 30. The total development cost to complete the Parcel D redevelopment plan is 2.7M. This includes the construction of 8 retail spaces and a tenant common area, total of 16,330 gross square feet, or $167/ gsf. With a net operating income (NOI) of $180,547 for the first operating year, we calculated a going-in cap rate of 6.6% and average cash on cash yield, on outstanding equity over 10-year holding period, of 7.5%. The overall project IRR is estimated at 6.1% with the investor’s IRR at 7.8%. We have assumed that Woodlawn United would take the role of the sponsor. Since Woodlawn currently experiences difficulties in boosting revenues and therefore attracting investors, we are proposing a preferred investor partnership model, thus making the investment more attractive for private investors.

Summary Project Description Type of Use Star construction Available for lease Pro Forma Analyze Start Square Foot for Lease Square Foot with Common Area Market Vacancy & Loss Land Price Total Investment Going-In Cap Rate (2017) Stable Cap Rate (2018) Terminal Cap Rate Assumed Hold Period

Total Investment Total Profit Equity Multiple IRR Average Cash on Cash Yield

Retail 2/8/16 12/20/17 1/1/17 16,030 16,330 9% $ 460,700 $ 2,733,804 6.6% 6.0% 8.5% 10 year Results NOI CF After Financing Investor Level Sponsor Level $ 2,733,804 $ 820,141 $ 410,071 $ 410,071 $ 4,323,469 $ 1,356,211 $ 711,742 $ 644,468 1.58x 1.65x 1.74x 1.57x 6.1% 6.9% 7.9% 6.0% 7.5% 8.3% 6.7%

We believe the project is financially feasible and a good opportunity for nonaggressive investors. Based on our research, the property does not have any legal or physical restrictions that could prevent the project from being realized in the near future.

We have calculated that the hurdle rent for this project is $7.97/sf and the average rent used in the Pro Forma is $10.00 /sf. We think that the $10.00 /sf is conservative compared to the rents exhibited in the Rental Rate and Lease Structure Study, as part of Section 5, page 26. Please refer to the “Project Cash Flow Pro Forma” and the “Partnership/ Capital Stack Proposal” for more details and calculations related to the results in the table above.

FINANCIAL ANALYSIS  Project Cash Flow Pro Forma The Cash Flow Before Debt Service & Taxes is 6.07% IRR and the Cash Flow After Financing is 6.93% IRR. The Cash Flow After Financing has a higher IRR because of the first year Overage Debt payment. In 2017, the first year of the holding period, the debt payment would be six months of interest rate only payments for the construction loan and six months for the permanent mortgage, which is also included in the Overage Debt calculation, occurring in the transition period between the two debt structures. Pro Forma

2017

Rent Roll Tenant #1 Tenant #2 Tenant #3 Sales Tax Sharing Tenant #1 Tenant #2 Tenant #3 Reimbursement Expenses Vacancy & Loss Effective Gross Income Operating Expenses Management Capital Reserve Net Operating Income Tenant Improvements Leasing Commissions Cash Flow Before Debt Service & Taxes Construction Loan Overage Debt Traditional mortgage Cash Flow After Financing

2018

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

169,600 118,800 37,300 13,500 42,612 29,160 8,952 4,500 21,480 (21,032) 212,660 (21,480) (8,506) (2,127) 180,547

$ $ $ $ $ $

(6,784) 173,763 $ (51,031) 71,598 (67,633) $ 126,698 $

Indicated Debt Service Coverage Ratio

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

2.57

2019

2020

2021

172,144 120,582 37,860 13,703 43,251 29,597 9,086 4,568 21,802 (21,348) 215,850 (21,802) (8,634) (2,158) 183,255

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

174,726 122,391 38,427 13,908 43,900 30,041 9,223 4,636 22,129 (21,668) 219,088 (22,129) (8,764) (2,191) 186,004

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

177,347 124,227 39,004 14,117 44,558 30,492 9,361 4,706 22,461 (21,993) 222,374 (22,461) (8,895) (2,224) 188,794

183,255

186,004

188,794

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

2022

180,007 126,090 39,589 14,328 45,227 30,949 9,501 4,776 22,798 (22,323) 225,709 (22,798) (9,028) (2,257) 191,626 (41,840) (2,157) 147,629

2023

2024

2025

182,707 127,981 40,183 14,543 45,905 31,414 9,644 4,848 23,140 (22,658) 229,095 (23,140) (9,164) (2,291) 194,500

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

185,448 129,901 40,785 14,761 46,594 31,885 9,789 4,920 23,487 (22,998) 232,532 (23,487) (9,301) (2,325) 197,418

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

188,230 131,850 41,397 14,983 47,293 32,363 9,935 4,994 23,840 (23,343) 236,020 (23,840) (9,441) (2,360) 200,379

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

191,053 133,827 42,018 15,208 48,002 32,849 10,084 5,069 24,197 (23,693) 239,560 (24,197) (9,582) (2,396) 203,385

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

193,919 135,835 42,648 15,436 48,722 33,341 10,236 5,145 24,560 (24,048) 243,153 (24,560) (9,726) (2,432) 206,435

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

196,828 137,872 43,288 15,667 49,453 33,841 10,389 5,222 24,929 (24,409) 246,800 (24,929) (9,872) (2,468) 209,532

194,500

197,418

200,379

203,385

206,435

209,532

(135,265) $ 47,990 $

(135,265) $ 50,739 $

(135,265) $ 53,529 $

(135,265) $ 12,364 $

(135,265) $ 59,235 $

(135,265) $ 62,152 $

(135,265) $ 65,114 $

(135,265) $ 68,119 $

1.35

1.38

1.40

1.09

1.44

1.46

1.48

1.50

Cash Flow After Financing IRR Average cash on cash Yield

(2,733,804) $ 6.07% 7.07%

180,547 $ 1.58x 6.6%

183,255

(820,141) $ 6.93% 7.52%

126,698 $ 1.65x 15.4%

47,990

186,004

6.7%

6.8% $

5.9%

50,739 6.2%

188,794

6.9% $

53,529 6.5%

191,626

7.0% $

12,364 1.5%

2027

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Reversion Selling Cost Remaining Mortgage Balance Total Sale

Cash Flow Before Debt Service & Taxes IRR Cap Rate

2026

194,500

7.1% $

59,235 7.2%

197,418

7.2% $

62,152 7.6%

200,379

7.3% $

65,114 7.9%

1.53

8.5% $ 3% $ $ $

203,385

7.4% $

68,119 8.3%

(135,265) 71,170

2,465,080 (73,952) (1,652,026) 739,102

2,597,563 7.6%

810,272 8.7%

Note: Calculations of Cap Rate and Average cash on cash Yield do no consider the total sales (reversion)

 Sources and Application of Funds USES Land Price Target Price for Construction Site Improvements Mortgage Origination fees Legal Cost Developer Fee Contingency Total Uses Of Funds

$ $ $ $ $ $ $ $

SOURCES Construction Loan Sponsor Investor Total Sources

$ $ $ $

$ Amount 460,700 1,821,612 200,000 34,879 50,000 36,432 130,181 2,733,804

$ $ $ $ $ $ $ $

$/ Sq.Ft. 28 112 12 2 3 2 8 167

$ Amount

% of Total

1,913,663 410,071 410,071 2,733,804

70% 15% 15% 100%

The total estimated investment necessary for the redevelopment of parcel D is $2,733,804. The table to the left represents a break down of the Uses and Sources required for the completion of the project. USES  Land Price of $460,700 is based on the sum of the Tax Appraisals of the four lots, forming Parcel D.  Targeted Price for Construction of $1,821,612 is based on $97/sf of Hard Construction Cost and $15/sf of Soft Costs, including A&E Fees and Contingency. SOURCES  To cover the total cost of developing the site, we recommend 70% construction loan and 30% equity investment.  The Sponsor, Woodlawn United, will need to invest 15% of the total development cost or $410,071.  The Investors, a private entity or potentially the development company, will need to invest the remaining 15% of the total development cost or $410,071.

Note: The overall cost to redevelop Parcel D is $167/sf of which 67% is allocated to the construction of the retail facility, 17% is allocated to purchasing the land, 7% is assigned to the redevelopment of the site and 9% is provided to cover all associated fees and the contingency.

 Debt Assumptions: Construction and Permanent Loans Debt Construction Loan Start Date LTV Amount Rate Term months Amortization / Payment End Balance

2/8/16 70% 1,913,663 6%

17 Interest-Only $ 1,913,663

Appraisal of the Property 2018 Cap Rate 6% NOI 2018 $ 183,255 Valuation $ 3,054,248 Permanente Mortgage Start Date 6/2/17 LTV 65% Amount $ 1,985,261 Rate 5.50% Term months 360 Balloon months 120

The Table on the left depicts the Debt structure and assumptions for the Construction and Permanent Loans for this project. To finance the development, we recommend the following:  Step 1: The Construction Loan is obtained on 2/8/16 when the actual construction of the retail facility commences. It is an interest only loan with a fixed interest rate of 6% and 17 months in duration. The loan is terminated on 5/1/17 when the Permanent Loan initial term begins. (Refer to the Construction Schedule in Section 7 of this proposal)  Step 2: To obtain the Permanent Loan, the newly constructed property is reappraised and the new valuation is used as a basis for the amount taken by the Permanent Mortgage. This appraisal would be based on the stabilized cash flow in year 2 of the holding period or 2018. Since this is a ground up, value add type investment, we are projecting that the property will increase 0.6% in value and therefore we are using 6% cap rate as the stabilized on-going cap rate for this project.  Step 3: The Permanent Mortgage is based on 65% of the projected valuation in Step 2, with a 10-year Balloon payment at maturity. The $1.9M mortgage would be used to pay out the initial construction loan and the remaining balance (Overage Debt) is included in the 2017 Cash Flow After Financing. Also, to satisfy Debt Service Coverage Ratio that most banks require (our research shows that DSCR of 1.2 and higher is stipulated), a Capital Reserve is added as a Non-Reimbursable Expense, with total balance of $498,880 in year 10 of the holding period.

Overage Debt*

71,598

*Difference between End Balance on the Construction Loan and the Permanent Mortgage

 Income – Rent Roll Assumptions The Rental Rates, expressed in sf., are based on the table Rent Rate and Lease Structure Study, included in Section 5, page 26 of this proposal. Based on that information, the average rent that the market supports in the Woodlawn area is $11.10/sf. After we acknowledged the market, we decided to take a slightly more conservative approach and use an average of $10/sf, which is 11% lower than the market rate of $11.10/sf. That way, we can guarantee positive cash flow despite of the 9% vacancy and the challenging Woodlawn market conditions. Due to tenants’ turnover in year 5 of the holding period, accounting for 5,230sf of retail space, and the cost of the Tenant Improvements and the Leasing Commission, needed to accommodate new tenants, the pro forma shows a negative cash flow in that year. This is altered to positive, because of the 1.5% annual rent and sales escalation, which we thought reasonable and based on the 2014 national average inflation rate. Annually Rent and Sales Escalation Leasing Commissions Tenant Improvements/Sq.Ft. Proposed use Occupied Area in Sq.Ft. Rental Rate/Sq.Ft. Sale Projection/Sq.Ft. Term Beginning Term in Years

$ $

Rent Roll Assumption 1.5% 4.0% 8.00 Tenant #1 National Retail 10,800 11.00 $ 180 $ 12/20/17 10

Tenant #2 Tenant #3 Local Retailers Coffee Shops / Lunch Serving 3,730 1,500 10.00 $ 9.00 $ 160 $ 200 $ 12/20/17 12/20/17 5 5

Total / Average 16,030 10.00 180 6.67

 Income – Sales Tax Sharing Assumptions We were able to calculate the amount of the total Sales Tax Sharing moneys that the city would be willing to pay back to the sponsor as part of the Public Private Partnership agreement. The Sale Projections per sf, listed in the table above are based on the Retail Rent Comparison chart on page 26 of this proposal and is the basis for the sales tax sharing calculations. We expected that the Tenants’ sales tax would be 3%, of which 50% would be collected by the city and 50% would be paid back to the sponsor.

 Expenses Assumption Expenses Assumption Reimbursable Expenses are based on a Pro Rata Share for each tenant’s Annually Expenses Escalation area. The reimbursable expenses are included under the income category and also under the operational expenses in the Project Cash Flow Pro Operating Expenses Reimbursable Expenses: Forma on page 30. We have structured the pro forma that way, since it is Common Area Maintenance $ the responsibility of the landlord to pay for these expenses as he will be Real Estate Taxes $ reimbursed by the Tenants. Insurance $

As non- reimbursable expenses we have included the management fee of 4%, and the capital reserve of 1%, which also provides additional cash flow to secure the minimum Debt Service Coverage Ratio required by the bank.

Non-Reimbursable Expenses: Management Capital Reserve

1.5% 7.0% 2.0% 0.75 0.40 0.190 5.0% 4.0% 1.0%

 Sale / Reversion Assumption The total net proceeding from the final sale in year 10 of the holding period is based on the Reversion less the Selling Commission less the Remaining Mortgage Balance. The reversion occurs at the end of that year, and the calculation is based on the projected NOI, in the year following the last year of the holding period, year 11, divided by the Terminal Cap rate of 8.5%. The terminal cap rate is based on the CBRE Cap Rate Survey for a Retail- Neighborhood Center Segment C. This cap rate is considered conservative, taken the opportunistic nature of Woodlawn area and its future growth potential. The Selling Commission is assumed to be 3% of the Reversion balance.  Partnership/ Capital Stack Proposal The Partnership/ Capital Stack Financial Model is built with an initial preferred return of 8% for the investor and the sponsor (Woodlawn United), with the investor having the first priority on the payment. The purpose for this distribution is to establish early stage return on capital and identify the segmentation of risk, by putting the investor in front of the line of returns, on the expense of the sponsor. Therefore, the proceedings from cash flow are paid out to the investor until minimum preferred return is reached. In year 5 of the holding period, when tenants turnover takes place, the cash flow from distribution is $7,320 and it is paid directly to the investor with no funds allocated to the sponsor. After the investor and sponsor are paid out their preferred returns and there are additional funds remaining from the cash flow to dispense, the third tier of distribution occurs. The third tier allocations are split based on the ratio agreed to in the initial investment (50% sponsor and 50% investor).

Partnership Distribution Total Equity Investor Sponsor Preferred Return Investor Sponsor

$ $ $

820,141 410,071 410,071

100% 50% 50%

8% 8%

Cash Flow and Capital Event Distribution

2017

Cash Flow distribution 1st Investor Investor Injections Prefer Return Distribution

2019

2020

2021

2022

2023

2024

2025

2026

$47,990

$50,739

$53,529

$12,364

$59,235

$62,152

$65,114

$68,119

$810,272

$32,806 $32,806

$32,806 $12,364

$32,806 $32,806

$93,892

$15,184

$17,933

$20,723

$26,429

$29,347

$32,308

$35,314

$777,466

410,071

Cash Flow distribution 2nd Sponsor Investor Injections Prefer Return Distribution

2018

$126,698

410,071 $ $

32,806 32,806

$ $

32,806 15,184

$ $

32,806 17,933

$ $

32,806 20,723

$ $

32,806 -

$ $

32,806 26,429

$ $

32,806 29,347

$ $

32,806 32,308

$ $

32,806 32,806

$ $

32,806 32,806

Cash Flow distribution 3rd

$61,086

$2,508

$744,661

Investor Distribution Sponsor Distribution

$30,543 $30,543

$0 $0

$1,254 $1,254

$372,330 $372,330

RETURNS SUMMARY Total Cash Flow from Operations IRR Net Cash Flow Cash Flow Multiple

$ $

Total Project Cash Flow After Financing $ IRR Net Cash Flow $ Cash Flow Multiple Average Cash on Cash Yield Investor Cash Flow

$ IRR Net Cash Flow $ Cash Flow Multiple Average Cash on Cash Yield

Sponsor Cash Flow

$ IRR Net Cash Flow $ Cash Flow Multiple Average Cash on Cash Yield

(2,733,804) $ 6.1% 4,323,469 1.58x

180,547

183,255

186,004

188,794

191,626

194,500

197,418

200,379

203,385

2,597,563

(820,141) $ 6.9% 1,356,211 1.65x 7.5%

126,698

47,990

50,739

53,529

12,364

59,235

62,152

65,114

68,119

810,272

(410,071) $ 7.9% 711,742 1.74x 8.3%

63,349

32,806

12,364

32,806

34,060

405,136

(410,071) $ 6.0% 644,468 1.57x 6.7%

63,349

15,184

17,933

20,723

26,429

29,347

32,308

34,060

405,136

15.4%

5.9%

15.4%

6.2%

8.0%

3.7%

6.5%

8.0%

4.4%

1.5%

8.0%

5.1%

7.2%

3.0% $

0.0%

7.6%

8.0%

6.4%

7.9%

8.0%

7.2%

8.3%

8.0%

7.9%

8.7%

8.3%

8.7%

FEASIBILITY ANALYSIS  Physical Description The total land area of the project is 1.4 acres of which 55% belongs to all built facilities, common areas and other site improvements, and approximately 45% are allocated to parking. The current zoning ordinance dictates that every 250 gross square feet of leased retail space requires one allocated parking space. The overall buildable area of the project is 16,330 gsf with 16,030gsf of leased retail space and 96% efficiency, which is high considering the proposed usage. The project requires 64 parking spaces of which, 5 spaces are handicap accessible and one is van accessible. The shape of the site is somewhat regular, rectangular corner site, situated along 1st Ave to the north and 59th street to the east. All necessary utilities are present at the site; refer to the Technical Diagrams on page 17 of this report. The soils conditions, as depicted on the geotechnical report, could prove challenging due to shallow underlying bedrock, which does not allow for deep foundations or split building levels. However, the site is pretty even in topography witch is typical for the area shallow frost line. Therefore the foundations do not need to be any deeper than 24”, thus providing some savings in material and excavation cost. We have provided 5% contingency for any unforeseen conditions during construction. Geotechnical report, provided by the sponsor/ owner, Woodlawn United, is paid out by the development contingency of $130,181; refer to page 31 of this report.  Legal Description The site belongs to the B2 Zoning District: General Business District. The zoning for B2 district does not have any FAR restrictions, front or side setbacks, and it has a height restriction of 75 feet above street level. The zoning code states that every 250 feet of rentable area requires one dedicated parking spot. This project is designed as per current zoning requirements for parking. However, if the area gets rezoned in the future due to developers’ increased interest in the area, the parking could be reduced and the retail component can be increased.  Financial Analysis This development of parcel D is financially feasible, because the minimum rental rate necessary to even out the investment is $7.97/sf. We were conservative and used average rent of $10.00/sf in our pro forma. From the Rent Rate and Lease Structure Study you can see that the average market rent for Woodlawn area is $11.10/sf., which is 11% higher than the rate used in the pro forma and therefore we are allowing 11% room for error on our assumptions.

HURDLE RENT/FEASIBILITY Total Development Cost Cap Rate (direct) Required NOI Operating Expenses/Management /Capital Reserves Ratio Operating Expenses/Management /Capital Reserves Effective Gross Revenue Expected Vacancy Rate (frictional) Vacancy Allowance Load Factor Sales Tax Sharing Net Reimbursement Expenses Rent Roll Building Area (SF) HURDLE RENT Market Rent Average ($/sf/year) FEASIBLE?

$2,482,312 6.0% $148,939 15.1% $26,490 $175,428 9.0% $192,778 0.0% $43,251 96.0% $21,802 $127,725 16,330 GSF 16,030 $7.97 $10.00 YES

 Hurdle Rent/ Feasibility The hurdle rent study was generated based on the Stable Cash Flow distribution in year 2 of the holding period (2018) as part of the pro forma projections, shown on page 30 of this report. In the Hurdle Rent/ Feasibility table, the minimum rent is shown lower than the market rental rate because the sales tax sharing revenue is accounted for as an income.

 Land Residual Technique The value of the improved land less the cost of the development results in $992,205 Residual Land Value or $531,505 capital gain (Revenue – Land Cost of $460,700). Being able to achieve such high number for “Residual” Land Value, 40% compared to the total development cost, proves that retail is one of the highest and best uses for Parcel D.

RESIDUAL LAND ANALYSIS Net Operating Income ( 2018) $183,255 Cap Rate (direct) 6.0% Total Market Value $3,054,248 Total Development Costs $2,021,612 Development Margin $40,432.23 RESIDUAL LAND VALUE $992,205 Land Cost $460,700 Land Residual (Deficit) Over Cost Residual

CONSTRUCTION SCHEDULE

SECTION 7

PROJECT TIMELINE  Phasing and Scope As part of the Parcel D redevelopment plan, we are proposing that the city of Birmingham redesigns the current layout of the 1st Ave to allow parallel and 45 degree parking. The developer is responsible for the improvements within the boundary of the purchased parcel D and not for any of the street walks, street pavement or greenery along 1st Ave and 59th street. However, the developer will engage in further discussion on the matter, if the city is interested in expanding the Public Private Partnership agreement and the Sales Tax Sharing Program. The phasing plan shown on the right is for coordination and sequence of construction only. We are not envisioning phased construction and therefore our schedule and development cost are based on a single phase of construction. We consider the primary building, parking and common area as part of Phase 1, followed by the site improvements and landscape as Phase 1A. The area denoted “Donations” will be built in Phase 1A and, after completion, the area will be donated to the city. The city will be responsible for maintaining the area, which is to remain free and open to the public.

 Construction Schedule

40 D is cl