10 May Read and review the attached offering memorandum and financial model. ?Prepare a letter to your investor making your recommendation on the invest
Read and review the attached offering memorandum and financial model. Prepare a letter to your investor making your recommendation on the investment.
Grading will not depend on whether you recommend the investment or not, but a point will be given (up to 10) for incorporating vocabulary and demonstration of concepts from Chapters 1-6 of the textbook.
JV OFFERING EXECUTIVE SUMMARY
RIVERSbrook LLC wholly owns County Plaza LLC and has invested $6,072,598 into the project to date. In addition, to the investment by RIVERSbrook LLC, Seas Investment House, an International real estate fund has made a loan of $2,000,000 into County Plaza LLC and has committed to fund an additional $9,000,000 in equity into the LLC upon closing a construction loan for the project. Finally, there exists a land loan to American Bank in the amount of $8,782,000 collateralized by the 28 acres of land. The land has been appraised at a value of $18,000,000.
We have been working to syndicate a $41,600,000 construction loan with American Bank, Oak Springs Bank and State Commerce Bank. This loan value was based on a Phase I budget in the amount of $57,000,000 and represents 73% debt to equity ratio and was anticipated to have a rate of LIBOR plus 325. Currently, the credit committee at American Bank (the lead bank) approved the loan contingent upon receiving a net worth guarantee in the amount of $50 million and a liquidity guarantee in the amount of $5 million. There was previous consensus among the bankers that the balance sheet of RIVERSbrook LLC and its partners was sufficient to cover these guarantees. However, with the drastic shifts in the credit markets and with the balance sheet of RIVERSbrook LLC being heavily weighted towards residential assets, the banks have stipulated that an additional credit enhancement will be required.
In light of the need to find a new partner and that we have executed leases for 53.1% of the total space, we have made the decision create a new budget and proforma based on the total square footage to be resubmitted to the banks along with the balance sheets of the new partner. This budget now represents a $74.7 million total project cost and generates stabilized return on cost return of 9.3% with an expected IRR of 26.5%.
RIVERSbrook LLC is looking to secure a new JV partner that will provide both the loan guarantees as stipulated by the banks and the additional equity required. It is expected with a 73% debt to equity ratio, with the costs to date incurred by RIVERSbrook LLC at $6,072,598, and with the repayment of the Seas Investment House $2,000,000 loan, the required equity from a JV partner will be $14.1 million.
RIVERSbrook LLC fully anticipates that the JV partner will require Managing Member status and major decision making controls, however, RIVERSbrook LLC is looking to remain as the day to day development, construction and leasing manager. RIVERSbrook LLC will work in this capacity to develop and lease the project.
As time is of the essence given that leases have been executed and the project can begin site work, RIVERSbrook LLC would like to receive offers for JV by November 10th, 2021.
Proprietary Property of UoNA CONFIDENTIAL – For Academic Use Only
,
PROJECT HIGHLIGHTS
RIVERS Plaza is a 274,000 square foot retail, entertainment and dining lifestyle center located in the heart of Rural County, VA, one of the fastest growing and wealthiest counties in the nation. With excellent demographics and huge average household income, RIVERS Plaza is set to become the next great retail location in Rural County. As RIVERS is contiguous to the 300,000 square foot County Village Center, and will extend the strength and drawing power of an existing market dominant center. County Village Center is anchored by Home Depot and Giant Foods. With the inclusion of the Target, Lowe’s anchored Arcounty Center and the Wal Mart, Kohl’s anchored National Landing, the total retail space anticipated at the intersection of Rural County Parkway and Route 150 will exceed 2,500,000 square feet.
1. Location
a. Located in Lacelilly, Rural County, VA
b. Positioned on Route 150 (34,000VPD) at a signalized intersection just west of the interchange with Rural County Parkway (27,000 VPD)
2. Project
a. Fully entitled and zoned for uses as presented by County Planning and Zoning.
b. All proffers and wetland mitigation approved.
c. Signalized intersection approved and installed at Oakbrook Road and Route 150.
d. North Oak Parkway Construction Documents 100% complete and approved.
e. Interparcel connector between County Village Center and RIVERS Plaza approved.
f. Civil Construction Documents 100% complete by City Engineering and Associates and through 4th and final revision with County Building and Development.
g. Architectural Construction Documents 95% complete by JKM Architects.
h. Tenant Design Handbook and Construction Criteria 100% complete.
3. Leasing
a. 53.1% of the space is Executed
i. Movie Theater Company – 47,500 square feet
ii. Platinum Gym – 45,000 square feet
iii. Bowling Strike – 31,455 square feet
iv. Thai Restaurant – 2,500 square feet
v. Nice Restaurant– 5,104 square feet
vi. Ice Cream – 1,483 square feet
vii. Kabob Restaurant– 1,761 square feet
b. 60.3% of the space Executed or Signed LOI
i. Learning Center – 13,000 square feet – LOI
ii. Pancake House – 5,000 square feet – LOI
c. 76.5% of the space Executed, under signed LOI, or in Active LOI discussion.
Proprietary Property of UoNA CONFIDENTIAL – For Academic Use Only
,
COST BUDGET
| CONSTRUCTION COST | |||||||||
| Cost | |||||||||
| Land Loan To American Bank(2) | $ 8,782,000 | ||||||||
| SIH Loan Re-Payment (includes 12% interest for one year) (2) | $ 2,240,000 | ||||||||
| Pre-Development Costs To Date Sep. 24, 2008 (note held by OakBrook LLC and MM, LLC) (2) | $ 6,072,596 | ||||||||
| Design / Engineering (remaining $$'s to be spent, other costs in pre-development) | $ 500,000 | ||||||||
| Construction Administration (owners rep, owners office, insurance, bonds, permit fees) | $ 500,000 | ||||||||
| Site Work (as an amount per acre, assuming 28 acres, surface parked) (1) | $ 271,429 | $ 7,600,000 | |||||||
| Hardscape | $ 1,000,000 | ||||||||
| North Oak Parkway Construction (reps. 1/2 of total costs, rest is paid by residential) | $ 1,000,000 | ||||||||
| North Oak Parkway Signal Entrance | $ 250,000 | ||||||||
| Wetlands Mitigation | $ 300,000 | ||||||||
| Interchange Proffers | $ 2,200,000 | ||||||||
| Building (4) | |||||||||
| Retail (built out to a cold dark shell) | $ 75.00 | $ 6,487,350 | |||||||
| Office (built out to a warm, vanilla box, plus elevator and exterior corridor) | $ 110.00 | $ 3,319,910 | |||||||
| Theater (owner to build space with a cap of $8,500,000) | $ 8,500,000 | ||||||||
| Gym | $ 5,515,200 | ||||||||
| Bowling | $ 4,089,150 | ||||||||
| Learning Centers | $ 1,105,000 | ||||||||
| Retail Tenant Allowances | |||||||||
| Specialty | $ 36.22 | $ 3,132,570 | |||||||
| Office | $ 10.00 | $ 301,810 | |||||||
| Retail Leasing Fee to be Executed | $ 5.50 | $ 939,120 | |||||||
| Retail Leasing Fee Executed to Date | $ 997,000 | ||||||||
| Marketing | $ 350,000 | ||||||||
| Finance (assumes 73% of total at 6.46% interest for 1.5 years at 65%) | 6.46% | $ 3,436,044 | $ 3,436,044 | ||||||
| Loan Closing Costs (includes fees, title, and legal, calculated as a % of Loan amount) | 2.0% | $ 1,091,067 | $ 54,553,373 | ||||||
| Legal (per buildable square foot) | $ 1.50 | $ 411,146 | |||||||
| Taxes | $ 250,000 | ||||||||
| Development Fee (not including land, fees and finance) | 5.0% | $ 2,573,591 | $ 51,471,826 | ||||||
| Diamond Asset Management Fee (includes hard costs, land costs, design and marketing) | 0.00% | $ – 0 | $ 57,305,586 | ||||||
| Gulf Investment House Asset Management Fee | 0.00% | $ – 0 | $ 57,305,586 | ||||||
| Gulf Investment House Underwriting Fee (% of Gulf Investment House total equity) | 0.00% | $ – 0 | $ 14,124,093 | ||||||
| Contingency – Soft Costs | 3.0% | $ 242,512 | $ 8,083,742 | ||||||
| Contingency – Hard Costs | 5.0% | $ 1,544,582 | $ 30,891,640 | ||||||
| TOTAL CONSTRUCTION COSTS | $ 74,730,648 | ||||||||
| DEBT | 73% | $ 54,553,373 | |||||||
| EQUITY | |||||||||
| New Equity (assumes SIH Loan Repayment) | 69.9% | $ 14,104,679 | |||||||
| Oakbrook LLC | 30.1% | $ 6,072,596 | $ 20,177,275 | ||||||
| Notes: | |||||||||
| (1) Site work includes clearing, grubbing, grading, utilities, parking, lighting and landscaping. | |||||||||
| (2) Land has been appraised for $18 million. |
OPERATING PRO FORMA
| RIVERS PLAZA | |||||||||
| FINANCIAL ANALYSIS | |||||||||
| CONSTRUCTION | OPERATIONS | ||||||||
| YEAR 1 | YEAR 2 | YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 (Term Calc) | ||||
| INCOME | |||||||||
| ANCHOR RENT | 1,693,392 | 2,406,642 | 2,781,642 | 2,853,552 | |||||
| SPECIALTY RENT | 2,160,734 | 2,584,517 | 2,957,836 | 3,046,571 | |||||
| OFFICE RENT | 286,720 | 442,982 | 608,361 | 626,612 | |||||
| GROUND RENT | 150,660 | 536,455 | 859,329 | 885,109 | |||||
| PERCENTAGE RENT | – 0 | – 0 | – 0 | 0 | |||||
| MISCELLANEOUS INCOME | 59,500 | 83,300 | 119,000 | 122,570 | |||||
| TOTAL RENTS | 4,351,006 | 6,053,895 | 7,326,168 | 7,534,414 | |||||
| SPECIALTY COLLECTION LOSS AND VACANCY | INCLUDED IN RENT | (267,465) | (275,489) | ||||||
| TOTAL RENTS COLLECTED | 4,351,006 | 6,053,895 | 7,058,704 | 7,258,925 | |||||
| EXPENSE RECOVERIES | |||||||||
| CAM, INSURANCE & MANAGEMENT FEE | 1,194,203 | 1,289,149 | 1,358,776 | 1,399,105 | |||||
| REAL ESTATE TAXES | 644,128 | 663,452 | 683,355 | 703,856 | |||||
| TOTAL EXPENSE RECOVERIES | 1,838,330 | 1,952,601 | 2,042,131 | 2,102,961 | |||||
| EFFECTIVE GROSS INCOME | 6,189,336 | 8,006,496 | 9,100,835 | 9,361,887 | |||||
| EXPENSES: | |||||||||
| COMMON AREA MAINTENANCE | (1,096,388) | (1,129,280) | (1,163,158) | (1,198,053) | |||||
| REAL ESTATE TAXES | (685,243) | (705,800) | (726,974) | (748,783) | |||||
| MANAGEMENT FEE | (174,040) | (242,156) | (282,348) | (290,357) | |||||
| TOTAL EXPENSES | (1,955,671) | (2,077,235) | (2,172,480) | (2,237,193) | |||||
| NET OPERATING INCOME: | 4,233,665 | 5,929,261 | 6,928,355 | 7,124,694 | |||||
| Debt Service | (3,524,148) | (3,524,148) | (3,524,148) | ||||||
| Partnership Expenses | (15,000) | (15,450) | (15,914) | ||||||
| Property Capital Reserve | (137,049) | (141,160) | (145,395) | ||||||
| NET CASH FLOW | 557,469 | 2,248,503 | 3,242,899 | ||||||
| Project Cash on Cost Return @ Land Value | 5.7% | 7.9% | 9.3% | ||||||
| PARTNERSHIP DISTRIBUTIONS | |||||||||
| Net Cash Flow | 557,469 | 2,248,503 | 3,242,899 | ||||||
| Preference to E+quity @ 12% | (823,233) | (2,421,273) | (2,421,273) | (2,421,273) | (2,421,273) | ||||
| Preference Payment to Bos E+quity @ 0% | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| Cashflow to Partners | – 0 | – 0 | – 0 | – 0 | 821,626 | ||||
| Accrued Pref Repay to Equity | – 0 | – 0 | – 0 | – 0 | (821,626) | ||||
| Accrued Pref Repay to Bos Equity | |||||||||
| Cashflow to Partners | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| 0.075 | 94,995,917 | ||||||||
| Closing Costs @ 3.0% | (2,849,878) | ||||||||
| Loan Payoff | (54,553,373) | ||||||||
| NET TERMINAL VALUE | 37,592,667 | ||||||||
| Repay Accrued Pref to Equity | (4,459,454) | ||||||||
| Repay Accrued Pref to Bos Equity | – 0 | ||||||||
| Net | 33,133,213 | ||||||||
| Return of Equity to Equity | (20,177,275) | ||||||||
| Return of Equity to Bos Equity | – 0 | ||||||||
| Net Available for Distribution | 12,955,938 | ||||||||
| E+quity @ 100.0% | 12,955,938 | ||||||||
| Bos E+quity @ 0.0% | – 0 | ||||||||
| Bos Group @ 0.0% | – 0 | ||||||||
| Diamond Properties @ 0.0% | – 0 | ||||||||
| EQUITY IRR | |||||||||
| TOTAL PROJECT COSTS | (25,408,420) | (49,322,228) | – 0 | – 0 | – 0 | ||||
| DEBT | 18,548,147 | 36,005,226 | – 0 | – 0 | – 0 | ||||
| EQUITY | (6,860,274) | (13,317,002) | – 0 | – 0 | – 0 | ||||
| EQUITY IRR | (6,860,274) | (13,317,002) | – 0 | – 0 | – 0 | ||||
| EQUITY AND PREFERENCE REPAYMENT | – 0 | – 0 | 557,469 | 2,248,503 | 40,835,565 | ||||
| TOTAL | (6,860,274) | (13,317,002) | 557,469 | 2,248,503 | 40,835,565 | ||||
| IRR Sale YR 3 | 26.54% | ||||||||
| Bos Equity IRR | |||||||||
| TOTAL PROJECT COSTS | (25,408,420) | (49,322,228) | – 0 | – 0 | – 0 | ||||
| DEBT | 18,548,147 | 36,005,226 | – 0 | – 0 | – 0 | ||||
| EQUITY | (6,860,274) | (13,317,002) | – 0 | – 0 | – 0 | ||||
| BOS GROUP EQUITY | – 0 | – 0 | – 0 | ||||||
| EQUITY AND PREFERENCE REPAYMENT | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| TOTAL | – 0 | – 0 | – 0 | – 0 | – 0 | – 0 | |||
| IRR Sale YR 3 | 0.00% | ||||||||
| FINANCING | |||||||||
| LOAN AMT | 54,553,373 | 54,553,373 | 54,553,373 | ||||||
| DEBT REPAYMENT | – 0 | – 0 | – 0 | ||||||
| NET LOAN AMOUNT | 54,553,373 | 54,553,373 | 54,553,373 | ||||||
| INTEREST | 3,524,148 | 3,524,148 | 3,524,148 | ||||||
| Equity Capital Account | 6,860,274 | 20,177,275 | 20,177,275 | 20,177,275 | 20,177,275 | ||||
| Equity Repayments | – 0 | – 0 | – 0 | – 0 | |||||
| Total | 6,860,274 | 20,177,275 | 20,177,275 | 20,177,275 | 20,177,275 | ||||
| Bos Equity Capital Account | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| Equity Repayments | – 0 | – 0 | – 0 | – 0 | |||||
| Total | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| Equity Accured Interest | 823,233 | 2,421,273 | 2,421,273 | 2,421,273 | – 0 | ||||
| Accrued Interest Repayment | – 0 | – 0 | (557,469) | (2,248,503) | (821,626) | ||||
| Total | 823,233 | 3,244,506 | 5,108,310 | 5,281,080 | 4,459,454 | ||||
| Bos Equity Accrued Interest | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| Accrued Interest Repayment | – 0 | – 0 | – 0 | – 0 | – 0 | ||||
| Total | – 0 | – 0 | – 0 | – 0 | – 0 |
PRO FORMA ASSUMPTIONS
| Lease Up Assumptions | |||||||||||||
| Anchor Rent Assumptions | Yr 1 | Yr 2 | Yr 3 | Yr 4 | |||||||||
| Theater | 1,094,392 | 1,094,392 | 1,094,392 | 1,094,392 | |||||||||
| Gym | – 0 | 713,250 | 758,250 | 803,250 | |||||||||
| Bowling | 300,000 | 300,000 | 630,000 | 630,000 | |||||||||
| Learning Centers | 299,000 | 299,000 | 299,000 | 325,910 | |||||||||
| Total Anchor Rent | 1,693,392 | 2,406,642 | 2,781,642 | 2,853,552 | |||||||||
| Specialty store lease up YR 1 | 77.5% | [75% 1&2Q; 80% 3&4Q] | |||||||||||
| Specialty store lease up YR 2 | 90.0% | [85% 5&6Q; 95% 7&8Q] | |||||||||||
| Office Space Lease Up Year 1 | 50.0% | ||||||||||||
| Office Space Lease Up Year 2 | 75.0% | ||||||||||||
| Ground Rent Lease Up Year 1 | 18.6% | Pad K | |||||||||||
| Ground Rent Lease Up Year 2 | 64.3% | Pad B, C and K | |||||||||||
| Ground Rent Lease Up Year 3 | 100.0% | Pad E, B, C, and K | |||||||||||
| Rental Assumptions | |||||||||||||
| Anchors PSF increase every 5th YR | $ 0.50 | ||||||||||||
| Specialty rent annual growth rate | 3.0% | ||||||||||||
| Office Rent Annual Growth Rate | 3.0% | ||||||||||||
| Ground Rent Annual Growth Rate | 3.0% | ||||||||||||
| Specialty Collection Loss / Vacancy Allowance | 7.5% | ||||||||||||
| Percentage Rent YR 3 | – 0 | ||||||||||||
| Percentage rent annual growth rate | 3.0% | ||||||||||||
| Other Income Assumptions | |||||||||||||
| Miscellaneous Income YR 3: | |||||||||||||
| 10 Carts | – 0 | ||||||||||||
| 5 Payphones | – 0 | ||||||||||||
| 3 Vending | 6,000 | ||||||||||||
| 5 Directory Advertising | – 0 | ||||||||||||
| 2 ATM | 8,000 | ||||||||||||
| Events | 5,000 | ||||||||||||
| Sponsorship | 100,000 | ||||||||||||
| 119,000 | |||||||||||||
| Misc. Income YR 1 as % of YR 3 | 50% | ||||||||||||
| Misc. Income YR 2 as % of YR 3 | 70% | ||||||||||||
| Misc. Income annual growth rate | 3.0% | ||||||||||||
| Expense Recovery Assumptions | |||||||||||||
| CAM & Management Fee Recovery | 94% | ||||||||||||
| Real Estate Tax Recovery | 94% | ||||||||||||
| Expense Assumptions | |||||||||||||
| CAM and Insurance expense PSF of GLA | $ 4.00 | ||||||||||||
| Real Estate Taxes | $ 2.50 | ||||||||||||
| Management Fee @ 4% gross rent | $ 0.63 | ||||||||||||
| Expense Growth Rates | |||||||||||||
| CAM expense annual increase | 3.0% | ||||||||||||
| Real estate tax annual increase | 3.0% | ||||||||||||
| Management Fee % of Rents | 4.0% | ||||||||||||
| Financing | |||||||||||||
| Construction Loan Funding Percentage | 73.0% | ||||||||||||
| Interest on Construction Loan | 6.46% | 1 Month LIBOR (assumed 321bps) + 325bps | 646 | ||||||||||
| Preference on Equity | 12.0% | ||||||||||||
| Preference on Other Equity | 0.0% | ||||||||||||
| Ownership | |||||||||||||
| Equity | 100.0% | ||||||||||||
| Bos Equity | 0.0% | 0.0% | 0.0% | IRR | |||||||||
| Bos Group | 0.0% | 0.0% | 51.0% | $ – 0 | |||||||||
| Diamond Properties | 0.0% | 0.0% | 49.0% | $ – 0 | |||||||||
| VALUATION | |||||||||||||
| Capitalization Rate | 7.50% | ||||||||||||
| Cost of Sale % | 3.0% | ||||||||||||
| Capital Improvements | |||||||||||||
| Capital Improvements | $ 0.50 | ||||||||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | ||||
| Specialty Rent Growth | 2,788,044 | 2,871,685 | 2,957,836 | 3,046,571 | 3,137,968 | 3,232,107 | 3,329,070 | 3,428,942 | 3,531,811 | 3,637,765 | |||
| Office Rent Growth | 573,439 | 590,642 | 608,361 | 626,612 | 645,411 | 664,773 | 684,716 | 705,258 | 726,415 | 748,208 | |||
| Ground Rent Growth | 810,000 | 834,300 | 859,329 | 885,109 | 911,662 | 939,012 | 967,182 | 996,198 | 1,026,084 | 1,056,866 |
TENANT $
| ANCHOR ASSUMPTIONS | ||||||||||||
| YEAR 3 | TOTAL ALLOWANCES | |||||||||||
| NET RENT | (DETAIL BELOW) | RENT/ | ||||||||||
| NAME | SF | $/PSF | TOTAL(000) | $/PSF | TOTAL(000) | COMMENTS | COST | |||||
| Major A | Theater | 47,500 | $ 23.04 | $ 1,094.4 | $ 178.95 | $ 8,500.1 | 12.9% | |||||
| Major B | Gym | 45,000 | $ 16.85 | $ 758.3 | $ 122.56 | $ 5,515.2 | 13.7% | |||||
| Major C | Bowling | 31,455 | $ 20.03 | $ 630.0 | $ 130.00 | $ 4,089.2 | 15.4% | |||||
| Major D | Learning Centers | 13,000 | $ 23.00 | $ 299.0 | $ 85.00 | $ 1,105.0 | 27.1% | |||||
| 0 | 0 | 0 | $ – 0 | $ – 0 | $ 2.00 | $ – 0 | 0.0% | |||||
| 0 | 0 | 0 | $ – 0 | $ – 0 | $ 2.00 | $ – 0 | 0.0% | |||||
| 0 | 0 | 0 | $ – 0 | $ – 0 | $ 2.00 | $ – 0 | 0.0% | |||||
| 0 | 0 | 0 | $ – 0 | $ – 0 | $ 2.00 | $ – 0 | 0.0% | |||||
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