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S H I P L E Y F A R M
1 4 3 0 T O W N F A R M R O A D U P P E R M A R L B O R O , M D 2 0 7 7 4
R E S I D E N T I A L D E V E L O P E M E N T
M A S T E R O F S C I E N C E - R E A L E S T A T E
C O M M U N I T Y D E V E L O P M E N T
S U P E R V I S O R : I S S A C M E G B O L U G B E
P R E P A R E D B Y : S H I R L E Y J E N K I N S - B O Y D
J O H N S H O P K I N S U N I V E R S I T Y
C A R E Y B U S I N E S S S C H O O L
P R A C T I C U M M A Y 2 0 0 9
TABLE OF CONTENTS
SECTION 1: EXECUTIVE SUMMARY
a) Project Overview
b) Investment Structure
c) Project Schedule
SECTION 2: INVERSTMENT OVERVIEW
a) Salient Investment
b) Opportunities for Value Enhancement
c) Strengths and Weaknesses
SECTION 3: DEVELOPMENT OVERVIEW
a) Description of Development
b) Site Design
c) House Design
SECTION 4: PHYSICAL ANALYSIS
a) Topography
b) Soils and Subsurface Conditions
c) Wetlands/Floodzone
d) Storm Water Management
SECTION 5: LEGAL AND POLITICAL ANALYSIS
a) Building Codes
b) Permitting & Building Fees
c) Impact Fees
SECTION 6: MARKET ANALYSIS
a) National / Regional / Local
b) Demographics
c) Market Area
d) Supply / Demand / Absorption/ Comparable
e) Target Market
TABLE OF CONTENTS
SECTION 7: SALES AND MARKETING INFORMATION
a) Print Media
b) Paid Advertising
c) Local Realtors, Brokers, Boards and Associations
SECTION 8: FINANCIAL ANALYSIS
a) Project Budget
b) Cash flow Analysis
SECTION 9: DEVELOPMENT SCHEDULE
a) Project Schedule
SECTION 10: APPENDIXES
APPENDIX A – ZONING MAP
APPENDIX B – PLAT
APPENDIX C – BOUNDARY SURVEY
APPENDIX E –ZONING REGULATIONS
APPENDIX F – GEOTECHNICAL ENGINEERING STUDY
APPENDIX G – SUBDIVISION PROCESS
APPENDIX G - HOME OWNER’S ASSOCIATION DECLARATION OF COVENANTS,
CONDITIONS, RESTRICTIONS AND EASMENTS
SECTION 1: EXECUTIVE SUMMARY
Project Overview Investment Name: Shipley Farm Property Type: Single-Family Residential Units Development Costs: Required Equity: Location: The project is located in the suburbs of Prince George’s county in the
submarket of Washington, D.C. It is located east of MD 202 Landover Road and on the south side of Town Farm in Upper Marlboro, MD.
Project Description: A planned 42-unit single-family residential development. Covenant
Development, LLC will acquire the 46.92 acre property known as Shipley Farm located at 14305 Town Farm Road, Upper Marlboro, MD 20774. The current owners of the property has already completed phase I of the subdivision process and recorded the lots. Covenant Development, LLC will complete phase II of the subdivision process by providing the detail site plan, develop the lots and install the infrastructure. The project will consist of luxury single-family dwellings with exceptional designs. The homes will range in size of 4,500 square feet to over 7,000 square feet on estate size lots of 30,000 square feet to over 2 acres. The project will be unique because the potential buyer will have the many options to choose from to make the home fit their lifestyle. Shipley Farm offer uniquely designed homes at affordable prices to fit the needs and lifestyle of each owner. The project will target move up buyers looking to stay in the county without sacrificing style, taste or quality.
Site Overview Site Area: 1,783,782 sf Zoning: R-E (Residential Estate) Lot Size: 30,000 sf to over 2 acres Unit Size: 4,500 – over 7,000 sf Utilities: Public Water and Sewer Electric and Gas Available Phone and Cable Ready
Investment Structure
Financing for the project will consist of a acquisition/ development loan for the acquisition and development of the land. It is very similar to a traditional loan but it except the acquisition costs are rolled into the loan thus reducing the upfront loan fees compared to traditional financing. The buyers are must obtain financing using a construction perm loan for the purchase the lot and the construction of the home. This is the best product available for this project because of the tax benefits it offers the borrowers and reduces the risk to Covenant Development, LLC. We anticipate repayment of the loan by the end of year 2015.
After careful review and analysis of the cash flow proforma and market forecast data, we believe that this project will succeed. We anticipate that the real estate market will be in a better position within the next three years when the project begins and continue to improve as we close out four years later.
Project Schedule Land Acquisition: March 1, 2010 Land Development Start: May 1, 2010 Construction Start – Homes: September 1, 2010 Substantial Sold: January 1, 2014 Substantially Completed: July 1, 2014
SECTION 2: INVESTMENT OVERVIEW
SALIENT INVESTMENT FEATURES
Shipley Farm is located in the quite town of Upper Marlboro, MD in Prince George’s county. It is located east of MD route 202 Landover Road on the south side of Town Farm Road. The property is located behind Brock Hall Manor, a mature single-family. To the west is another section of Brock Hall Manor and to the east is Marlboro Manor subdivisions. The property currently has two single-family dwellings, open green space, mature trees, a pond and several other agricultural buildings. The neighborhood character provides for a quite park like setting. The property is centrally located and easily accessible to Washington, DC, Annapolis, Baltimore, Montgomery County, Charles County and Virginia. The property is located in close proximity to dining, shopping, entertainment, schools, house of worship and public transportation. Potential can enjoy dining, shopping and entertainment at Restaurant Park and the newly completed Boulevard at Capitol Centre located just a few minutes away in Largo, MD. Potential buyers can also enjoy dining, shopping and entertainment just a short drive away in Annapolis and Baltimore, MD. Public transportation is available via the local city bus, metro bus, metro rail and taxi. The property is located about 35 minutes from BWI airport and 40 to 45 minutes to Washington National airport. The surrounding homes in the area range from single-family one level to custom-built homes. In Brock Hall Manor, each home is unique and no two homes look alike. The homes feature unique design detail, garage and street parking. The neighborhood is well maintained and ageless. To capture our target market, we have selected exciting floor designs that surpass any other product that is currently available on the market. We will build our product better than the competition and more cost effective. We the market with our product, each unit will feature hardwood and ceramic flooring, fireplace, crown molding, chair rail, tall ceilings, new kitchen with upgraded cabinetry, stainless steel appliances, built in microwave, and granite counter tops. OPPORTUNITIES FOR VALUE ENHANCEMENT
Shipley Farm provides an excellent value-added opportunity to convert raw land into residential development. The property consists of 42 luxury single-family lots with sizes ranging from one plus acre to over 2 acre lots. The opportunity for buyers to own a home with more than one-half acre in Prince George’s County is a great accomplishment. Many buyers purchase homes with an average lot size of one-fourth of an acre. The property is well located inside Washington, DC Metropolitan Statistical Area (MSA) and easily accessible to downtown Washington, DC, Baltimore, Annapolis, and Virginia. Residents are within close proximity to fine dining, shopping, entertainment and public transportation. Last June 2008, Prince George’s County received “AAA” Bond Rate status by Standard & Poor’s (S&P). One of three bond rating agencies on Wall Street. The county has spurred economic growth and job growth with the ground breaking of Woodmore Towne Centre which will include retail, office and residential; the grand opening of the National Harbor with the Gaylord Hotel, retail, restaurants and residential. The county also had another addition with the grand opening of the Comcast Call Center located in Largo, MD. Prince George’s are positive strides and large advancement in the right direction as major player in the game.
PROJECT STRENGTHS AND WEAKNESS
STRENGTHS Project Location WEAKNESS
SECTION 3: DEVELOPMENT OVERVIEW
DESCRIPTION OF PROPERTY
The property is located in the Petworth area of Washington, DC. Although this property is located in Petworth, it is more closely situated to Suburban Maryland, Washington’s CBD, and other well-established neighborhoods in upper northwest and Maryland. It is surrounding by apartment buildings, single-family homes, places of worship, commercial, medical and retail establishments. It is within walking distance to Rock Creek Park, Carter Barron and many other famous landmarks in the city. The property was originally built in 1938 of brick and cinder block framing, with a brick façade and a flat roof. It sits on 0.38 acre and currently consists of 23,433 rentable square feet. The property is 3-stories with a basement. It consists of 36 apartment units, a laundry room and window air condition. The unit mix consists of nine efficiencies and twenty-seven one-bedroom apartments. It is currently 97% occupied. The net operating income for the property is $22,158 with operating expense of $106,910, respectively. The lack of on-site parking was a challenge because most buyers desire private parking. After carefully review of our market analysis and comparable properties in the area we realized that it was not the most important amenity. The physical layout of the building prevented us from designing more modern units. The building consists of long L-shaped hallways that does not allow for much design change. Although we were able to design a floor plan that is functional, some units tend to be slightly smaller or larger. By taking the laundry and boiler out of the basement, we were able to add additional units. The new square footage for building from its exterior walls is 33,820. That is gain of 10,387 square feet. Engineering issues were also a concern for us given the age of the building. All the major system (including mechanical, electrical, and plumbing (MEP) in the building had to be replaced and/or installed. Each unit must be individually metered along with heating and cooling system installed. This line item added significant cost to our budget. Another concern for the project is environmental issues. Because of the age of the building and the time period in which it was built, asbestos and lead abatement must be performed before we can begin construction. After carefully reviewing all of the information, the project can be done on time and within budget.
SITE PLAN
DETAILED SITE PLAN
Detailed site plan for Shipley Farm project with lot location and site development details.
Source: Doug Milburn, Weichert Realtors Platinum Service
PLAT
PLAT ONE
Shipley Farm – Lots 1 thru 5 and 40 thru 42
PLAT
PLAT SIX
Shipley Farm – Lots 25 thru 28 and 29 thru 32
PLAT
PLAT TWO
Shipley Farm – Lots 6 thru 9, 37 thru 39, and Parcel B
PLAT
PLAT FIVE
Shipley Farm – Lots 19 thru 24 and 33 thru 36
PLAT
PLAT THREE
Shipley Farm – Lots 10 thru 14
PLATS
PLAT FOUR
Shipley Farm – Lots 15 thru 18 and Parcel A
MAPS
The subject property is located in Upper Marlboro, MD in Prince George’s county. The property is located east of MD route 202 Landover Road and on the south side of Town Farm Road. The property is located behind Brock Hall Manor a well-established residential community. Marlboro Manor a much newer community is located to the east of the property. The neighborhood provides for a quite, rural country setting. It is centrally located with easy access to Washington, DC, Annapolis, Baltimore, Montgomery County, Charles County and Virginia.
Ariel Map of Subject Property (photo: courtesy of Google Map)
MAPS
From this view, the stream can be seen on the property. As mentioned earlier, one of the drawbacks of the property is the railroad track that is still operable located behind the property. In this photo you can see the train tracks just to the right. Although the tracks are several feet away from the subject, we still have some concerns when train passes by.
General area of subject property (Photo: courtesy of Google Map)
More detailed and specific location of subject property
PHOTOS
AVAILABLE MODELS / FLOOR PLANS
The Grand Botticelli – The Grand Boudin – The Grand Cezanne - The Grand Rembrandt - The Grand Monet - The Grand Michelangelo -
INCLUDED FEATURES
INTERIOR DETAILS: Oak Staircase w/Bound Carpet Runner Traditional Oak Railings Throughout Masonry Family Room Fireplace w/Mantel and Gas Logs Colonial Base Mouldings and Trim Package Classic Panel Interior Doors with Polished Brass Lever Handles Two Piece Crown Moulding in Living Room, Dining Room and Library Two Piece Chair Rail and Ceiling Medallion in Dining Room Nine Foot Ceilings Thoughout (some may be higher depending upon floorplan)
FLOOR PLAN A - The Grand Botticello (Photos courtesy of WCI Communities)1
.
1 Source: WCI Communities, Inc, http://www.wcicommunities.com
FLOOR PLAN B The Grand Boudin (Photos courtesy of WCI Communities)2
2 Source: WCI Communities, Inc, http://www.wcicommunities.com
FLOOR PLAN C – The Cezanne (Photos courtesy of WCI Communities3
3Source: WCI Communities, Inc, http://www.wcicommunities.com
FLOOR PLAN D – The Rembrandt (Photos courtesy of WCI Communities)4
4 Source: WCI Communities, Inc, http://www.wcicommunities.com
FLOOR PLAN E – The Grand Monet (Photos courtesy of WCI Communities)5
5 Source: WCI Communities, Inc, http://www.wcicommunities.com
FLOOR PLAN F– The Grand Michelangelo (Photos courtesy of WCI Communities)6
6 Source: WCI Communities, Inc, http://www.wcicommunities.com
SECTION 4: PHYSICAL ANALYSIS
SECTION 5: LEGAL AND POLITICAL ANALYSIS
SECTION 6: MARKET ANALYSIS
NATIONAL ECONOMIC FACTORS
GROSS DOMESTIC PRODUCT (GDP) The GDP is the single most watched economic statistic because it is believed to be the single best measure of the economic well-being. The GDP measures the total income of a nation. The GDP measures two things at once; the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. The real GDP for the fourth quarter of 2008 dropped 6.2%. That was lower than earlier projections of -3.8%. The sharp decline was due mostly to the negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. However, the positive contributor was federal government spending which offset the decline.7 EMPLOYMENT The annual nonfarm payroll for goods-producing industry dropped slightly for 2008 to 137,066 compared to 2007 137,598 which represents an annual decrease of 1%. The annual service-providing industry reported an increase for 2008 of 115,646 compared to last year’s 115,366. This represents an annual increase of 1%. The projected monthly nonfarm payroll for goods-producing and service-providing industries for February 2009 was 133,768 and 113,891, respectively. The projected was slightly down for both industries compared to January 2009 projections of 134,419 and 114,266, respectively.8 The monthly unemployment rate for February reached an all time of 8.1%. This is a 0.94% increase over January 2009. Although the monthly unemployment rate is up 0.94 %, the annual 1% increase in the service-producing industry the economy is experiencing should help reduce the unemployment rate over time. PERSONAL INCOME According to the Bureau of Economic Analysis, “personal income (PI) increased 44.8 billion, or 0.4% and disposable personal income (DPI) increase $183.0 billion, or 1.7% in January 2009. Personal consumption expenditures (PCE) increased $56.4 billion, or 0.6%.” Compared to December 2008, PI $24.0 billion, DPI $17.8 billion and PCE $101.0 billion all decreased 0.2%, 0.2% and 1%, respectively. The contributing factor to the January increased was due largely to the federal government and military workers pay raise boosted the government wage and salary disbursements and an increase in the cost of living adjustments for several federal transfer payment programs increased the personal current transfer receipts.9
2008 2009
Sept Oct Nov Dec Jan
(Percent change from preceding month)
Personal income, current dollars 0.1 0.0 -0.4 -0.2 0.4
Disposable personal income:
Current dollars 0.2 0.1 -0.3 -0.2 1.7
Chained (2000) dollars 0.1 0.5 0.8 0.4 1.5
Personal consumption expenditures:
Current dollars -0.4 -1.2 -0.8 -1.0 0.6
Chained (2000) dollars -0.5 -0.8 -0.3 -0.5 0.4 Source: Bureau of Economic Analysis, http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
7 Source: http://bea.doc.gov/newsreleases/national/gdp/2009/pdf/gdp408p.pdf 8 Source: http://www.bls.gov/ces/#tables, (Historical B-1) ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt 9 Source: http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
NATIONAL ECONOMIC FACTORS
According to Moody's Economy.com personal income should progress in 2009 and increase even greater in 2010. The current tax cuts and increased transfer payments will help boost disposable income growth in the first half of the year. Falling farm income, which has hurt the Plains states, will stabilize as commodity prices even out. Low energy prices will hold growth in check in the formerly robust energy-producing states. Muted inflation pressures will support real income growth throughout 2009.10 The entire nation is in the midst of a recession, and we believe the remainder will succumb over the coming year. Given the deterioration of the labor market and the tenuous near-term economic outlook, personal income growth will pick up by mid-2010.11 INFLATION Inflation is defined as “an increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices. It may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.”12 The inflation rate is measured by the Consumer Price Index (CPI). The inflation rate at the end of February 2009, was reported at 0.24%. This represents an increase from January 2009 reported inflation rate of 0.03%. If rates continue to rise and then level, the economy may start to recline from the economic crisis.
Current Inflation Rate
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2009 0.03% 0.24% NA NA NA NA NA NA NA NA NA NA NA
2008 4.28% 4.03% 3.98% 3.94% 4.18% 5.02% 5.60% 5.37% 4.94% 3.66% 1.07% 0.09% 3.85%
2007 2.08% 2.42% 2.78% 2.57% 2.69% 2.69% 2.36% 1.97% 2.76% 3.54% 4.31% 4.08% 2.85%
2006 3.99% 3.60% 3.36% 3.55% 4.17% 4.32% 4.15% 3.82% 2.06% 1.31% 1.97% 2.54% 3.24%
2005 2.97% 3.01% 3.15% 3.51% 2.80% 2.53% 3.17% 3.64% 4.69% 4.35% 3.46% 3.42% 3.39%
2004 1.93% 1.69% 1.74% 2.29% 3.05% 3.27% 2.99% 2.65% 2.54% 3.19% 3.52% 3.26% 2.68%
2003 2.60% 2.98% 3.02% 2.22% 2.06% 2.11% 2.11% 2.16% 2.32% 2.04% 1.77% 1.88% 2.27%
2002 1.14% 1.14% 1.48% 1.64% 1.18% 1.07% 1.46% 1.80% 1.51% 2.03% 2.20% 2.38% 1.59%
2001 3.73% 3.53% 2.92% 3.27% 3.62% 3.25% 2.72% 2.72% 2.65% 2.13% 1.90% 1.55% 2.83%
2000 2.74% 3.22% 3.76% 3.07% 3.19% 3.73% 3.66% 3.41% 3.45% 3.45% 3.45% 3.39% 3.38%
Source:http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp MORTGAGE AND INTEREST RATES U.S. mortgage applications saw an increase in March 2009, as record low interest rates spurred a surge in demand for home refinancing loans. According to the Mortgage Bankers Association (MBA) said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans,
10 Source: http://www.economy.com/dismal/pro/blog_main.asp?m=3&d=24&y=2009&cid=113689#113689 11 Source: http://www.economy.com/dismal/pro/blog_main.asp?m=3&d=24&y=2009&cid=113689#113689 12 Source: http://inflationdata.com/inflation/Inflation_Articles/Inflation_Definition.asp
NATIONAL ECONOMIC FACTORS
increased 32.2 % to 1,159.4 for the week ended March 20. Refinancing accounted for 78.5% of all applications. Interest rates on mortgages fell after the Federal Reserve last week said it would buy Treasury securities for the first time in more than four decades as well as more than double its planned purchases of mortgage-related securities. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.63%, down 0.26% point from the previous week, reaching a record low. Interest rates were well below last year rates 5.74%. "The housing market is coming back, but not roaring back," he said. "We have gone from a crawl to a brisk walk and we will still have to navigate some pitfalls before we are able to get running again" according to Leif Thomsen, chief executive of Mortgage Master in Walpole, Massachusetts. In addition, Mr. Thomsen, said his company is doing more business now than every before, with just over $1 billion in total mortgage lending since the beginning of the year, 85 percent of which has been in refinancing. The Fed's purchases are part of its ongoing efforts to reduce mortgage rates to stimulate borrowing and boost the U.S. housing market, currently in the throes of the worst downturn since the Great Depression. However, so far, the low rates have had only a moderate impact on demand for loans to buy homes. The MBA's seasonally adjusted purchase index rose 4.2 % to 267.8. The index, however, was 33.7% below its level a year-ago of 403.7. Overall mortgage applications in the month of March 2009 are up 20% above their level a year-ago. Fixed 15-year mortgage rates averaged 4.48%, down from 4.52% the previous week. Rates on one-year ARMs increased to 6.22% from 6.20%.13
13 Source: http://www.cnbc.com/id/29873758
REGIONAL ECONOMIC FACTORS
REGIONAL ECONOMIC TRENDS
SECTION 7: SALES AND MARKETING STRATEGY
SECTION 8: FINANCIAL ANALYSIS
PROFORMA
A proforma was completed to assess the cash flow for 2005, the first year of acquisition, and subsequent condominium conversion. The expiration of the current leases will occur on a quarterly basis, thus following the first quarter of 2005, the cash flow for the property will gradually decline. At the end of the 1st quarter, the after tax cash flow will be $22,891, $17,013 after the 2nd quarter, $10,759 after the 3rd quarter, and $3,073 at the conclusion of the 4th quarter. ASSUMPTIONS
The Lafayette’s current monthly rental income from the 36 units is $22,158. The annual effective gross income is $261,334, with operating expenses accounting for 41.9% of the effective gross income. The current loan for the property is amortized over 30 years, at 3.0% interest rate, has an outstanding balance of $2,306,250. The property has a current market value of $2,980,606, a before tax IRR of 17.8% and an after tax IRR of 14.1%.
SECTION 9: DEVELOPMENT STRATEGY
SECTION 10: BIBLIOGRAPHY
www.city-data.com/cityupper-Marlboro-Maryland.html Us Department of Housing and Urban Development & US Commerce Department (2009) www.census.gov/prod/2009pubs/h170-07-18.pdf www.census.gov www.realtor.org/research www.wcicommunities.com EXECUTIVE OFFICE OF THE PRESIDENT. (2007).
Update of Statistical Area Definitions and Guidance on Their Uses (OMB Bulletin No. 08-01). Washington, DC: U.S. Office of Management and Budget. http://www.census.gov/population/www/metroareas/metrodef.html
SECTION 11: APPENDICIES
SALE INFORMATION
PROJECTED SALES SCHEDULE
Shipley Farm is a 42-unit single-family residential development project with homes ranging from 4200 to over 7200 square feet. The projected sales schedule is as follows.
Unit #
Unit Type
Current Rent
1 Efficiency $550 2 1 Bedroom $675 3 1 Bedroom $675 4 1 Bedroom $675 5 1 Bedroom (Vacant) $0 6 1 Bedroom $675 7 Efficiency $550 8 1 Bedroom $675 9 1 Bedroom $675 10 1 Bedroom $675 11 1 Bedroom $507 12 Efficiency $550 13 Efficiency $550 14 1 Bedroom $700 15 1 Bedroom $675 16 Efficiency $550 17 1 Bedroom $575 18 1 Bedroom $453 19 1 Bedroom $675 20 1 Bedroom $700 21 1 Bedroom $700 22 Efficiency $550 23 Efficiency $600 24 1 Bedroom $700 25 1 Bedroom $700 26 1 Bedroom $675 27 1 Bedroom $700 28 1 Bedroom $675 29 1 Bedroom $675 30 1 Bedroom $675 31 1 Bedroom $700
32 Efficiency $600 33 Efficiency $600 34 1 Bedroom $675 35 1 Bedroom $700 36 1 Bedroom $473 TOTAL 42Units $22,158
FINANCIAL INFORMATION – CONDOMINIUM CONVERSION
Financing for the project will consist of a development loan. We selected this product because it allows the borrower to acquire the property and the cost of renovations all in one loan. It is structured similar to a construction loan except the loan repayment is repaid according to a buy-down schedule based on the number of units sold. Because we will totally renovate the property, we have decided to do interest only with a term of two years amortized over 30 years. We obtained financing at 75% loan-to-cost and loan-to-value. Based on our pre-sales volume and market demand we anticipate repaying the loan by the end of the first year in 2006. Construction is anticipated to last anywhere from six to eight months. We allowed for a cushion to cover in delays in construction.
PROFORMA
Based on the numbers in the proforma and careful analysis of the current and forecast market conditions we anticipate this project to be a success. The before-tax and after-tax cash flow internal rate of return is 17% and 16%, respectively. Although the net present value shows that we are acquiring the property slightly higher than what it is presently valued. A detailed review of the market trends and cash flow analysis supported our proposed purchase price and the project would still be viable and profitable. Our before and after tax cash internal rate of return is slightly higher than are hurdle rate and therefore we elected to move forward as planned.
Stacking Plan
2006 Closing Schedule
September
October
November
December
3rd Floor
2nd Floor
1st Floor
Basement
307306
205204
301 302 303 310309308
208207206201 202 203 210209
305304
008001 002 003 004 005 006 007
108107106105104103102101
ASSUMPTIONS
Our proforma assumptions are based on an acquisition date of January 1, 2005 with construction beginning January 2006. We will obtain a development loan for a term of two years amortized of 30 years with an interest rate of 4.75% and a LTV of 75%. Based on our proforma results and market trend analysis data, we anticipate that the entire loan proceeds will be repaid to the bank by the end of 2006 due to high demand of sales for our product.
CONDOMIMIUM CONVERSION UNIT SALES
Following the condominium conversion, the building will retain its red brick façade. The building will still be comprised of 36 units, yet larger, ranging from 595 to 1050 square feet. The common area amenities will include the addition of a lobby elevator, marble flooring in the main lobby, and secured perimeter. The units will have 8’6” ceilings and the amenities will include central air conditioning and heat, gas fireplace, crown molding, washer/dryer, and hardwood floors. The kitchens will have granite countertops and stainless steel appliances.
MARKET INFORMATION
MARKETING
The property will be advertised in local daily and weekly newspapers, radio, and multiply listing services in an effort to draw a mixed racial and cultural diverse group of buyers. Our target buyer’s are affluent and busy individuals desiring to live in the city but also have services and comparable amenities.
We anticipate sales to begin in late 2005 and expect to be sold out by late 2006. If the market continues to grow at the current rate we do not foresee any problems in obtaining our objective.
TRADE AREA DESCRIPTION
Washington DC (Metropolitan Statistical Area) Trade Area The growth of the Washington area economy, especially that of the District of Columbia, will continue to be closely linked to federal spending and the national capital functions linked directly and indirectly to the federal government. This spending will support job growth in the metropolitan area that exceeds its ability to supply workers from within its resident population. As a result of net in-migration generated in response to continued above-average job growth, the regional economy will reflect a two-pronged growth pattern going forward: (1) high-end job growth (professional and business services with a technology-intensive and knowledge-base foundation) supported by federal spending and related national capital functions, and (2) population-serving job growth supported by increases in population combined with growth of purchasing power; these jobs will be seen largely in retail trade, construction, and health and education services. This two-prong pattern of future economic growth will occur in each of the area’s constituent jurisdictions with only their proportions of growth differing according to historic patterns and comparative advantages among jurisdictions. This combination of job growth (sector mix) will support above-average multipliers as the breadth of residentially based services and will capture a significant proportion of the spending potential generated by personal earnings resulting from employment growth in the non-residentially supported sectors. Both categories of jobs are projected to grow with the important distinction between these two categories being their average salaries; the wage differentials between the residentially supported jobs and non-residentially supported jobs ranges up from 200 percent; at the upper end of the professional and business service category this difference could be 400 percent or more. Employment projections indicate that the area’s workforce will grow by 863,000 new jobs between 2004 and 2015. Approximately one-half of these new jobs will be high value added and technology-intensive with above average earnings, while the other half will have a below average salary scale and be dependent on the local market for their gains. It is not a question of whether there will be enough jobs in the future (there will be almost as many new jobs as new residents) but rather the important question is how will these jobs be distributed across the Washington area jurisdictions and how will the central functions currently focused within the District of Columbia perform in this regional context.
EMPLOYMENT DENSITY
The District of Columbia’s economic future is tied to its non-local serving business base. Its expansion and diversification will provide the jobs and income needed to sustain and strengthen the economy’s vitality. However, capturing the benefits of this growth and building a stronger fiscal base for the District will require that District residents fill a growing proportion of the District’s new jobs. This will require that the capacity of the city to house more households is greatly expanded and that the educational and skill levels of D.C. residents are competitive with those of suburban residents. By increasing the residential base of the District to capture more of the city’s non-local serving jobs, the new household income generated will strengthen the local tax base and increase the market potential for local-serving business development. Building more housing, spanning a broad price and product spectrum, and increasing the quality of the District’s neighborhoods, especially the quality of public schools, are essential to strengthening the city’s future economic and fiscal conditions. Expanding the city’s housing stock and achieving educational parity with the suburbs is key. Attracting 100,000 new residents to the District is a lofty goal. To achieve this goal would require increasing the District’s housing stock by 43,500 units (the current household size in D.C. is 2.3 persons). While building that many new market-rate housing units may not be achieved in the short term, without substantially increasing the number of new housing units the District’s economy cannot achieve its fiscal and economic objectives. And without better public schools and improved public services, selling or renting large numbers of new housing in the city could prove challenging. The area’s economy will achieve significant economic growth going forward. If the District of Columbia cannot achieve its full potential in the region’s economy and participate in the substantial economic rewards that are projected to accrue for the residents of the Washington, DC area over the next decade, it will be a failure of local public policy and private initiative and not a failure of the economy. The challenge for the District of Columbia and its public and private sector leaders will be to position the city and its residents to gain a larger share of this inevitable growth in jobs and income.
PROPERTY COMPETITION
Sale Comparables Based on our market study the following two properties are the most recently properties available to use of comparables for the subject property. DEMOGRAPHICS
The Washington, D.C., Metropolitan Statistical Area currently has 5.2 million residents. The area added 791,000 residents over the past 10 years, and increase of 18 percent. This growth rate is 1.5 times the national pace, and is considered high for a large metropolitan area. The growth rate accelerated significantly from 1999 to 2002, consistent with the relative strength that the area’s economy had during this time period. The MSA is projected to add 550,00 residents over the next 10 years, for a growth rate 1.2 times the national average. This is equivalent to adding the existing population of the city of Seattle to the MSA. Nearly half of the increase in population has been attributable to positive net migration, which averaged 37,000 persons per year from 1993 through 2002.
POPULATION DENSITY
The Washington, D.C MSA has an exceptionally high concentration of college graduates. The percentage of adults in the MSA with a bachelor’s degree is (44%) which is 1.8 times the percentage nationwide (24%). The share with a graduate or professional degree (18.7%) is 5.6 times the national average (3.2%). The large concentration of college graduates has positive implications for the local economy, and is consistent with the focus upon white-collar jobs in the area. There has also been exceptional growth among affluent households in the MSA, particularly among those earning $150,000 or more per year. This bodes well for the local economy, supporting high levels of retail sales and strong demand for housing.
AVERAGE HOUSEHOLD INCOME
BIBLIOGRAPHY
www.city-data.com/cityupper-Marlboro-Maryland.html www.census.gov www.realtor.org/research www.bls.gov www.bea.doc.gov www.inflationdata.com Us Department of Housing and Urban Development & US Commerce Department (2009) www.census.gov/prod/2009pubs/h170-07-18.pdf Us Department of Housing and Urban Development & US Commerce Department (2009) www.census.gov/prod/2009pubs/h170-07-18.pdf EXECUTIVE OFFICE OF THE PRESIDENT. (2007).
Update of Statistical Area Definitions and Guidance on Their Uses (OMB Bulletin No. 08-01). Washington, DC: U.S. Office of Management and Budget. http://www.census.gov/population/www/metroareas/metrodef.html
The subject property Shipley Farms, consists of 42 single-family lots on 46.93 acres. The average lot size for this subdivision is approximately one plus acre lots. The zoning is R-E with lot sizes of 30,000 sf to over 2 acres. The dwellings will range in size from 4500 square feet to over 7,000 square feet. Public utilities are located at the site. The project will consist of 42 luxury single-family dwellings on estate size lots. The property provides for a quite, rural, country setting with open green space and large mature trees. The subject property is located in Upper Marlboro, MD in Prince George’s county. The property is just east of MD route 202- Landover Road on the south side of Town Farm Road. The property currently has two single-family dwellings and several agricultural buildings on the site. The subject property consists of raw open land, small wooded areas, a large metal shed, a barn and outbuildings. Previously the property had been an agricultural and horse farm. Prince George’s county is part of the District of Columbia Metropolitan Statistical Area (MSA). The District of Columbia is
