Denver Apartments

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Denver Apartments Denver Apartments A 174-unit, LEED®-Gold, Mixed-Use, Multi-Family Apartment Building Denver, CO 80211 September 2013 PROPOSED LOAN TERMS Denver’s Cherry Creek Neighborhood A to-be-formed single-purpose entity Managing Member: Apartment Community Development, LLC Borrower Co-Managing Member : Denver Apartments, LLC (an open-ended Fund formed in 2004 with a gross asset value of $1 billion) Guarantors Apartment Community Development, LLC Completion Guaranty provided by Guarantors. Requesting quotes for the Partial Repayment Guaranty being provided by: Guarantee - Guarantors only - Guarantors and Denver Apartments, LLC. Commitment Date October 7, 2013 Up to 75 percent loan-to-cost Loan-to-Cost Up to $44,000,000 Loan Amount First, for the recapitalization of the borrower after the acquisition of the land in an amount of 75 percent loan to cost. Second, for the construction Loan Purpose of the improvements. Vertical construction shall commence on or about December 2013 - January 2014. December 1st, 2013 Loan Closing Construction Substantial Completion: 20 months Period Either a: 1. Five-year total term (3+1+1) Term 2. Twelve- (12) year construction/perm loan with maximum interest only flexibility. Best rate available. Interest Rate Most competitive percentage possible. Lender Fees Prepayment No pre-payment penalty at any time Penalty Lender Memorandum Page 3 1 Project Summary 4 1.1 Overview 4 1.2 Project Schedule 7 1.3 Building Program 7 2 Financials 10 2.1 Capital Structure 10 2.2 Project Income and Expenses 13 2.3 Project Budget 15 3 Market 17 3.1 Denver Metro 17 3.2 Downtown Denver 18 3.3 Location 19 3.4 Direct Competition 22 4 Project Description 24 4.1 Overview 24 4.2 Sustainability & LEED 26 4.3 Entitlements 28 5 Risks 30 5.1 Development 30 5.2 Environmental 31 6 Team 32 6.1 Project Team 32 6.2 Apartment Community Development, LLC 33 Lender Memorandum Page 4 Project Summary 1.1 Overview Apartment Community Development, LLC, the region’s top developer of LEED®-certified multi- family projects, proposes a new development in Cherry Creek North, one of Denver’s premier retail and residential districts. Apartment Community Development (“ACD”) has closed on the site and received zoning which allows for the planned 174-unit, 12-story, mixed-use, multi-family LEED®-Gold building (the "Project"). Cherry Creek North Following is an overview of the project’s capitalization and summary: Equity: 95 percent of the Project’s required equity will be invested by Denver Apartments, LLC 5 percent invested by Apartment Community Development. Leverage: Anticipated loan-to-cost ratio of 75 percent. Debt coverage ratio in excess of 1.5x percent upon stabilization, which is defined as 94 percent occupancy, anticipated within 24 months of the Project’s Certificate of Occupancy. Lender Memorandum Page 5 Table 1 - Project Summary Development Summary: Cherry Creek Units: 174 Average Unit Size: 930 Average Rent (2015): $2,131 Average Rent per Sq.Ft. (2015): $2.29 Return on Cost (2016): 7.4% Cash-on-Cash Return (2016): 17.5% Investor Leveraged IRR 25.3% Investor Un-Leveraged IRR 11.2% Cost Summary: Chery Creek Land Cost as a % of Total Cost 15% Land Cost Per Unit $43,880 Land Cost Per SF $296 Total Cost/Net Leasable Sq. Ft. $310 Hard Cost/Net Leasable Sq. Ft. $204 Hard Cost/Gross Sq. Ft. $114 Hard Cost Per Unit $196,208 Cost Per Unit: $297,230 Projected Returns: 23% IRR Project Cost: Total Project costs will be approximately $51.7 million The Project’s aggregate cost per residential unit is approximately $297,000. Development Team ACD’s high-quality, budget-sensitive approach to multi-family LEED®- certified buildings explains how the company emerged from the Great Recession as one of Denver’s best-respected developers. As testament to ACD’s performance, the Project marks the third time that a Denver Apartments investment entity has invested in an ACD development. Location: The Site is in one of the most desired neighborhoods in the Rocky Mountains, and one of the most prestigious addresses in Denver. Cherry Creek North is arguably the premier shopping and dining neighborhood between Chicago and the West Coast, attracting national concept restaurants from the world-renowned Dr. Andrew Weil’s just-opened True Foods to timeless and established luxury retailers like Hermes. High barriers to entry due to zoning and neighbor resistance have meant virtually no new residential rental development in Cherry Creek in the past twenty years. The Cherry Creek North area is demonstrably different than Downtown Denver, and pent-up demand for the location as well as the Project’s finishes and amenities will boost absorption, retention and rental rates. Lender Memorandum Page 6 Target Market: With its ready access to shopping, top-tier restaurants, the Country Club and golf course as well as its central location within Denver, the coveted address will, ACD believes, appeal to three primary market segments: 1. High-Income Cherry Creek Employees – Given the recent new-construction and renovation of high-quality, high-priced office buildings in Cherry Creek, there are increasing numbers of high-income in-migrants that have come to work in these oil and gas, legal, wealth management, hedge fund and other offices. These highly-educated employees are very often coming from highly-walkable cities like San Francisco, New York, Boston and Chicago. They are drawn to Cherry Creek for its walkability and high-quality shopping and public spaces. The Project will fit naturally for this highly-selective demographic. 2. Mountain Pied-à-Terre - ACD expects that this Cherry Creek North location will attract a substantial number of high-net-worth, full- and part-time mountain dwellers who wish to have a pied-à-terre in a shopping and dining district, more vibrant and comfortable than downtown. 3. Younger, Fashion-Conscious – As Cherry Creek is the center of fashion for the Rocky Mountain region; ACD anticipates that younger residents will be drawn to the property for its adjacency to Cherry Creek’s fashion and retail scene. These are residents who will gain identity from this adjacency. Rental Rates & Unit Layout: Cherry Creek North is a classic example of demand outstripping supply. The Cherry Creek neighborhood, long one of Denver’s most sought-after addresses, nonetheless has had a shortage of high-rise apartment units. Despite not being located in Cherry Creek North, occupancy is historically extremely tight for high-rise units at the Seasons II. As a result, current Cherry Creek North rental rates are high and vacancy low. The Seasons II in Cherry Creek East is a prime example: built in 2009, the property has enjoyed low vacancy rates and high rents despite challenging unit layouts. And despite an average unit size of nearly 1,200 and a location that is inferior to the Project’s, the Seasons II commands over $2.20 per square foot rents. The Project’s projected rental rates of $2,130, or $2.29 per square foot, appears reasonable relative to the market considering: Average Unit Size - 930 square feet, a quarter smaller than the Seasons II Location - Within the walkable, “village” feel of Cherry Creek North ACD Experience – ACD as a manager has achieved significant premiums in its managed properties and has developed a recognized skill at driving revenues by creating community. Additionally, ACD has a proven track record of understanding a market, designing units and Lender Memorandum Page 7 amenities for that market and exceeding market rents with superlative self-management. ACD’s LEED®-Gold multifamily project on the edge of Denver’s Central Business District, is exceeding all projected performance metrics. The property is achieving $2.11 per square foot (inclusive of parking) net effective rents. The project, which received its TCO in December and began move- ins on December 26th, 2012, is currently 60 percent leased, only four months after delivery of the Certificate of Occupancy. Despite the fact that location is generally considered an “emerging” neighborhood and the competitive properties have arguably better-located properties, ACD has been able to beat the effective net rent (inclusive of parking) of its competitive set of $1.86 per-square-foot rents. The prior project’s success is achieved in large part by understanding and delivering the market’s goals and aspirations. 1.2 Project Schedule The Project's Development Team anticipates a 20-month construction period with early occupancy on the lower floors starting in summer 2015. Table 2: Project Schedule Pre-Development & Development Schedule Land Closing April 2013 Loan Commitment August 2013 100 Percent Construction Documents October 2013 Construction Commencement December 2013 Pre-Leasing Activities April 2015 Occupancy July 2015 Construction Completion/Certificate of Occupancy December 2015 1.3 Building Program Unit Size: The Project’s 174 dwelling units range in size from 514 square feet to 1,548 square feet. The average unit size is 930 square feet. Almost all dwelling units will have outdoor balcony space. Retail/Commercial: The first floor will contain approximately 4,000 square feet of commercial space, allowing for a prominent restaurant that meshes well with the residential lobby and will become a residential leasing asset as well as an identity “icon” for the building. A high- end restaurant is the targeted occupant, and the building Lender Memorandum Page 8 design will include requisite restaurant infrastructure, including a grease trap, grease duct, 600 amp service, heating and cooling ready for distribution. The proforma includes $70 per foot for landlord-provided tenant improvements. The expected rent is $40 per foot which is likely low given recent comps such as True Foods (starting at $33 and rising to $38 with $100 of TI per foot) and Del Frisco’s on First and St.
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