4900 Cedar Avenue – Description of Condominiums
PARTNERSHIP OPPORTUNITY
APARTMENT BUILDING – VALUE ADD PROJECT
UNIVERSITY CITY ~ WAYNESBORO, PA
Developer Partners: Linda Johnson, Nelson Harlow
Property Address: 1100 Sunrise Street, Waynesboro, North Carolina.
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Building Front Column Detail
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Lobby Detail –Marble Wainscoting Street View
Summary of Project:
Linda Johnson and Nelson Harlow are Developer Partners in the 1100 Sunrise Street Apartment project. The partners have a six-unit apartment building in a “B+” class neighborhood under contract to settle by the end of September 2011 at a purchase price of $150,000. The building itself is a C+ building in terms of condition and amenities. After $60,000 in refits and upgrades, the building will be a B to B+ building with higher rents averaging $900 per month and the value is expected to be $264,906.[1]
The building is a late 1800’s apartment building featuring six two-bedroom units. It is in good and habitable condition but does not have the finishes or layout to maximize rents. The current finishes are C+ but the neighborhood has risen to a B to B+ neighborhood.
The developers believe the building is ripe for repositioning as a B to B+ building because there are many professionals and graduate students moving into the market area but there is little attractive and affordable modern housing. The existing apartments are mostly C grade and rent for an average of $733 per month.
The partners are looking for an investor or investors to put up $100,000 in capital for the project, qualify and sign for the loans. The money will be used for down payment, renovation, closing costs and working capital. Ms. Johnson and Mr. Harlow will bring $23,500 to the project from their own accounts.
Ms. Johnson and Mr. Harlow will be repaid from the profits.[2] To secure their investment all the partners will be part-owners of the real estate through ownership of shares of a LLC which will own the real estate.
The duration of the project is planned at eighteen months and the cash investor will receive forty percent of the profits. Based upon expected profits of $109,704[3] the money investor is estimated to receive $43,881.60. The timing of the payout depends up on the speed with which the renovation and resale the building is accomplished. We anticipate six months to renovate the property then six three months to full occupancy and then nine months to sell the building. The brokers surveyed by the partners expressed an expected resale time of nine months for the building.[4]
No zoning approvals or variances are required for the work. All that is required are ordinary permits to do the work. The permits are readily available with no delays because no structural work is being done.
Developer Background:
Ms. Johnson and Mr. Harlow have been in the real estate business for three years and five years respectively. Mr. Harlow is the owner of Harlow construction, which is a Waynesboro based construction business. He has thirteen full-time workers in the field. Ms. Johnson is a real estate investor in Waynesboro and has been purchasing, renovating and holding or reselling one to four unit housing units at the rate of four per year.
Between the two of them Ms. Johnson and Mr. Harlow have sufficient experience in renovating and reselling residential properties in the Waynesboro area to handle this building which is residential in nature. Mr. Harlowe’s construction business routinely works on apartment buildings as part of his business.
Ms. Johnson and Mr. Harlow will be responsible for the day to day operations, financing, renovation, administration and marketing of the project. They will hire a real estate broker to resell the property.
The Property:
The building is a functioning apartment building and is structurally in good condition. The units are approximately 1,250 square feet.[5]
The building is cosmetically tired and dated but it does have many attractive features including 9’ X 14’ balconies on most units, a southern exposure, many historical details including marble wainscoting in the entry hall, extravagant detailing at the top of columns supporting the balconies and oak hardwood floors.
The building will be completely renovated and brought up to a B to B+ standard to be rentable as modern apartments at higher rents than are currently realized. The renovation will include acid washing of the exterior brick, landscaping, refurbished common areas with modern lighting and renewed finishes. The units themselves will feature new kitchen cabinets and countertops, more lighting, updated bathrooms, refinished hardwood floors, and washer/dryers in each unit.
The Neighborhood and Schools
The neighborhood is referred to as the “University City” section of Waynesboro and is home to students, alumni, professors and staff for the University of North Carolina (walking distance), Blue Heron University, Children’s Hospital and the Hospital of the University of North Carolina. It is also the home to working professionals who work in “Center City” Waynesboro which is where the banking, accounting, law and major employers such as Sanya Industries and Hallowell Industries are located. The major business district is less than four miles away which takes 10 minutes by car or fifteen minutes by bus.
The neighborhood has undergone ten years of gentrification as a result of the University of North Carolina’s investment of millions of dollars in the area over the past ten years. The investment includes street lighting, continuous security patrols, grants and loans to University Employees to purchase and improve homes to live in. The plan has worked remarkably well and values have soared as evidenced by run-down twin homes priced under $60,000 ten years ago now renovated and running above $150,000. The neighborhood has transitioned from a “C” neighborhood to a “B” to “B+” neighborhood but the apartment stock has not risen about “C” grade.
The neighborhood has further enhanced by the Alexander Charter School, which is the public elementary school serving the area. That school is run by the University of North Carolina and is comparable to a private school without the expense.
Good public schools are rare in the City of Waynesboro and the Alexander school district is drawing young families who cannot afford houses in the area.
The Real Estate Market:
University City is a hot residential area that is receiving lots of positive press (see, for example, September 7, 2010 article from Waynesboro Weekly).
There is a strong demand for housing in the area.
The gentrification and positive press has lead to many young professionals, MBA students, Law Students, Medical Students, medical residents, and new professors moving into the area. They cannot afford the newly refurbished homes yet they have a taste for modern housing. There is virtually no apartment product to meet this demand and this development will fill that void in the market. We expect to be able to substantially increase rents with the refurbished apartments. Current rents average $733 per month and after renovation we expect rents of $900 per month per unit.[6]
The Partnership Opportunity:
The developers are seeking investors to supply $100,000 in capital towards the project. The developers will supply $23,500 and the cash partner will apply for the bank loan.
The cash partner will receive all of their capital investment and profit before the developers receive any profits or fees from the project.[7] The developers will not charge management fees, overhead, construction over-rides, or any other fees to the project.
The exact timing of the return of capital and profit to the investors will depend upon the speed with which the building is renovated, rented out and resold.
Return On Investment
4921-25 Sunrise St.
Waynesboro, NC 19104
|Party |CASH INVESTMENT |TERM |PROFIT |
|Cash Partner |$100,000 |18 mos. |$43,961 |
|Linda Johnson |$11,750 |18 mos. |$32,871 |
|Nelson Harlow |$11,750 |18 mos. |$32,871 |
Note that Linda Johnson and Nelson Harlow and contributing time and effort to the project that they are not separately compensated for. The cash partner is not expected to contribute time or effort.
For Further Details:
Spreadsheets are included below. Please contact Linda Johnson at (216) 561-9540 or Nelson Harlow at (216) 584-3545.
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Rental Property Analysis at Lower Rents Prior to Renovation
Average rent of $733/mo.
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Rental Property Analysis at Lower Rents After Renovation
Average rent of $900/mo.
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[1] The target resale price is based upon an 8.5% CAP rate. According to local real estate brokers that is the going CAP rate for small “B” class apartment buildings. The spreadsheet titled “Commercial Property Profitability Spreadsheet” is the source of this number.
[2] There will be no fees or profits to Ms. Johnson or Mr. Harlow until the cash investors receives all of his/her profits and a full return of their cash investment.
[3] See the Flipper Spreadsheet for the source of the calculation of the anticipated profits
[4] The partners surveyed the three leading local commercial real estate brokers, Keller and Hansome, Cox & Associates and Zybeck Commercial Brokerage to reach this conclusion
[5] Units vary slightly but have equal bedroom and baths and are within 50 square feet of one another.
[6] Rent numbers and condition assessment of competing apartments were developed in consultation with brokers and tours by the principals of this deal of local apartments for rent
[7] The developers will be reimbursed their $10,000 good faith escrow deposit from the funds provided by the cash investor (at settlement on the building purchase). The developers will not receive any funds from this project until the cash investors have all of their cash investment and profit.
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