Class A Multifamily Ground Up Development, 3 Story Walk up Style with Surface parking

Developer
Columbus, OH

Posted March 09, 2024 17:01

Property Class Type: Class A Multifamily Ground Up Development, 3 Story Walk up Style with Surface parking

The Team: Pink Development and Construction has 10 years of market experience. 500+ closed brokered transactions of which the majority were for multifamily value add over the past 10 years. 50+ projects locally across all asset classes (Single Family, Multifamily, Hospital, Hotel, Industrial, University / School, etc). Pink Development and Construction is a vertically integrated ground up boutique development firm and self performs all design work, entitlements, permitting and permit holder / qualifier, construction management, lease up, and property management facilitation to a third party. Rob Ellis is the principal with 25,000 hours in the industry on a local, regional, and national level in agency, appraisal, construction and construction management, financial underwriting, sales and contract negotiation, and preconstruction.

The Market: Columbus, OH is experiencing unprecedented growth, surpassing every other U.S. city in the second half of 2023 with a remarkable 1.1% increase in population, according to a Bank of America Institute Ranking. The city stands out as an outlier in contrast to the declining populations observed in many Western and Northeastern counterparts like San Francisco, Los Angeles, New York, and Boston. The report underscores the influence of relative housing affordability, where cities with higher median mortgage payments see negative or weakly positive population growth. This growth trajectory aligns with the Mid-Ohio Regional Planning Commission's projection that central Ohio's population will exceed 3 million by 2050, fueled by strong economic development and substantial investments from companies like Intel and Honda. Columbus is now among the fastest-growing large metros in the country, with a manageable annual growth rate of 0.89%.

Property Structure: Individual or package of new construction infill triplex properties. Our 2 bedroom floorplan is as small and compact as you can design. The building is three, 2 bedroom and 1 bath units each of which are 650 sq ft approx. The majority of sites are urban infill lots purchased for $50,000. We obtain use variance to allow for the construction of a triplex which we have done 15+ times. Surface parking behind is efficient and cost effective. The building is all black, with modern upgrades. Because of the compact design, we are estimating rents 15% below average market rents of $1600 compared to $1800 and able to obtain a lease price per square foot of $2.46 which is approx 30-35% premium to single family, BTR, or hotel style multifamily. The typical piece of land is .07 acres and we are able to obtain density of 40-45 dwelling units per acre. This density combined with compact design drives a high equity product that also cash flows at the traditional "1%" rule. Permitting is very quick in Columbus, typically less than 60 days. Rezoning is also very quick, 60 days. We don't close on land unless we get the use variance to protect investment risk. The exit is a DSCR loan refinance upon full lease up within 7 months of debt. We are also open to co development, general partnerships, or limited partnerships. We have high equity here but the simplest way is through debt, depending on long term interest and if the fund or individual desires to hold the property long term.

The Financial Construction Numbers:

Land Cost Average: $50,000

Rezoning and permitting soft costs: $7,000

Hard cost without GC margin: $240,000

General Contractor Margin: $60,000

All in cost: $357,000

Appraised Value at Completion: $498,000 (based on suburban three story walk up comps, this is 15% below urban market comps but we are conservative. Income appraisal method and comparable sales appraisal method both support this valuation)

Rents At Lease up per month: $4,800

Equity at Completion: $141,000

The Ask: As you can see from the structure above, we would propose removing the general contractor fee of $60,000 to lower the basis of the project to $297,000. We would offer $60,000 interest per project which are typically 7 months start to finish. That is 20.2% on the project or 2.88% per month. Annualized IRR debt returns would be expected at 34.56%. Currently we develop these as a facilitator and make our general contractor fee only. We lose $120,000 in equity or more for each deal we do which we want to capture and hold these properties. Based on that, we are proposing a non-recourse option with debt as an instrument. We are open to the lender taking title in a single purpose entity. We are willing to sign performance contracts or bad boy carveouts to protect the investor but prefer non-recourse debt. We are also open to long term equity partnerships with a guarantee depending on the interest rate desired. The structure is very flexible here. A rendering of what we build is below.