The National
Market Analysis: Phase I Concludes July 27, 2009 TR Mann Consulting
June 2009
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What We Have Done • • • • • • •
Conducted demographic, internet, and field research Explored all residential alternatives Dove deeply into senior housing Assessed the rental market Explored the market for the land Evaluated the current architectural plans Prepared a number of proformas
TR Mann Consulting
July 2009
2
Modular Construction
499 West 3rd St. Berwick, Pa. 18603 1-800-843-7372 Ext. 265 Fax 570-752-1525 http://www.deluxebuildingsystems.com TR Mann Consulting
July 2009
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Rental • • • •
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•
Current, mean rates for quality apartments in Old City: 1 bedroom $1,701, 2 bedroom $2,269 “Vacancy rates are inclining up,” Philadelphia Business Journal, 10/27/08 “U.S. Apartment Market Worsens With Economy,” AP 4/7/09 “Supply is still higher than demand in Philadelphia … effective rents decreased by 2.3% when compared to first quarter 2008,” CPN 7/1/2009 Average rent for a one bedroom in Old City is $1,312 and is $1,920 for two bedrooms (Levy 2009 Center City Report) Market feedback demonstrating strong shift towards preferring rental would be required to make this option worth considering
TR Mann Consulting
July 2009
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Recommendations • • •
Conduct some “real world” market research to test “The National Club on Phase II” concept Prepare a presentation for your financial backers Consider marketing the land
TR Mann Consulting
July 2009
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The National Club on Phase II •
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• • •
• •
Because Phase II is less encumbered by land use and construction restrictions , it can be developed less expensively than Phase I. 54 two-bedroom, two-bath apartments at $550K can yield approximately $5.2 million net Requires simple, efficient design Revenue $29,700,000 – Cost $24,520,000 = Net $5,180,000 Assume $150 per sq. ft. construction (source: Mike Wagner, a member of our team who has built multiple projects in Philadelphia) Pro forma incorporates a 14% return for an equity partner Construction loan at 7%: $16.4 million
TR Mann Consulting
July 2009
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18 month construction schedule, 5 month pre-marketing, 6-month settlement period Leaves the Phase I land for either another use or later development
“Phase I”
“Phase II”
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Costs in Phase I Avoided in Phase II •
• • •
Park at Elfreth’s Alley and setback on higher floors create both opportunity costs and higher construction costs Numerous balconies are expensive Metal panel wall above the orange wall not a cost-efficient façade Intricacies of building design generate further expenses (walkways, carveouts, waterproofing, etc.)
TR Mann Consulting
July 2009
Historical orange wall creates issues beyond its preservation: • High ceiling for first floor (needed for light) creates opportunity cost of an additional floor’s worth of residences • First floor design inefficient as a result
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Phase II Pro Forma Expenses Land Cost
Income $0
Hard Costs
$16,644,675
Soft Costs
$1,542,477
FF&E
$65,000
$550,000 per unit X 54 units
$29,700,000
Expenses
$24,520,547
Est. Profit/Loss
$5,179,453
Marketing
$1,485,000
Financing details
Finance Costs
$3,993,909
Developer Fee
$789,486
Equity Loan (35% of Total Development Cost @ 14%/year) $8,099,237
TOTAL
$24,520,547
Construction Loan (67% of Total Development Cost @ 7%/year) $16,421,310
TR Mann Consulting
July 2009
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“Carefree” Market Depth for Phase II Numbers of “carefree” households per unit at The National:
25 Mile radius (PA)
Primary Market Area
Nbhd. Home Value
HH’s per unit (Phase II)
HH’s per unit (Phases I & II)
$450,000
444
235
$550,000
214
114
$450,000
22
12
$550,000
14
8
“Carefree” households defined here as 35-64 year old with no dependents in the house, $50,000+ annual income, and living in neighborhoods with the indicated median home values.
TR Mann Consulting
July 2009
9
The National Club • •
• • •
Differentiator Crystallizes benefits of Old City living in customers’ mind • Gives the depositors something to talk about • Provides discounts, enhancing value Builds a network of businesses promoting The National Club Selected partners will participate in events Provides a stream of content for electronic newsletters
TR Mann Consulting
July 2009
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Unit Mix • • • • • •
TR Mann Consulting
July 2009
Two bedrooms, two baths Couples Current homeowners Need to attract suburbanites Fewer units to sell Often most profitable – dumb space
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Amenities • • •
Place to work, place to play Board room – wireless, conference phone, copier, couple of carrels Party room – residential kitchen, seating
TR Mann Consulting
July 2009
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Options •
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•
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Because the costs to develop are more expensive in Phase I, it actually loses money if you use the same assumptions Can reduce the restrictions associated with Phase I to Phase II levels, you could continue the project At the completion of Phase II, you might have created enough demand to raise prices in Phase I and be able to build even if you can’t reduce restrictions Land currently planned for Phase I could be sold now or you could wait until conditions improve or another use arises (retail, hotel)
TR Mann Consulting
July 2009
13
When Do We Kick Off? •
•
•
Residential real estate market shows steady improvement towards a seller’s market. (For example, Cityspace’s “market action index” defines a seller’s market as 30 or above; condo & single family are both now at about 17.) Inventory of condos in City falls to less than 18 months’ supply. Sources (Delta Associates & local realtor) currently report a 2-5 year inventory of condos (depending on category and locale). Economy.com reports for Philadelphia become consistently positive.
TR Mann Consulting
July 2009
14
Pursuing Financing • •
• •
Complete research Develop presentation –What we have done –What we propose Present to existing lenders/investors Develop a list of other lenders/investors and present
TR Mann Consulting
July 2009
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Next Steps
• • • • • •
Establish scope of next phase Formulate a plan to talk with “Carefrees” to ascertain desire to move and receptivity to value proposition Scrutinize $150 per sq. ft. construction cost estimate; weigh relationship to product quality, price, and market demand Prepare a presentation for your financial backers Develop a list of other potential financial backers and present Market the land?
TR Mann Consulting
July 2009
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