Confidential Offering Memorandum 615 Holiday Dr. & 402 Church St. Galveston, TX 77550 88 units 1971 construction 758 avg sf offer process & contacts EXCLUSIVE REPRESENTATION FINANCING Newmark Knight Frank has been exclusively retained to represent the Seller in For parties interested in receiving debt quotes, please contact our Debt & the disposition of Palm Shore (“Property”). All inquiries about the Offering or Structured Finance team, Adam Allen, Tip Strickland, David Schwarz or Purvesh the Property should be directed to Newmark Knight Frank. Gosalia. Newmark Knight Frank facilitates agency, life company, bank, bridge, and mezzanine financing options for the acquisition of Palm Shore OFFERING PROCESS • All properties are being offered on an “All Cash” basis UNDERWRITING • Prospective purchasers will have the opportunity to visit the Property For questions regarding the underwriting presented in this offering memorandum through scheduled tours with Newmark Knight Frank. Please do not contact please contact John Young at 713.300.7957 or [email protected]. the on-site management directly. PROPERTY TOURS OFFER REQUIREMENTS To accommodate the Property’s ongoing operations, Newmark Knight Frank Offers should be presented in the form of a non-binding Letter of Intent, and must requests 24-hour advance notice to schedule a tour. include at least: NEWMARK KNIGHT FRANK - HOUSTON 1. Asset Pricing 1700 Post Oak Blvd, 2 BLVD Place, Suite 400 2. Due Diligence and Closing Timeframe Houston, TX 77056 3. Earnest Money Deposit T 713-599-1800 4. Description of Debt/Equity Structure F 713-599-1801 5. Qualifications to Close Purchase terms shall require cash to be paid at closing. Offers should be delivered to the attention of Brett Benton via fax or email. investment sales Brett Benton Russell Jones Matt Saunders Zach Springer Carter Mizell [email protected] [email protected] [email protected] [email protected] [email protected] T 713-337-5800 T 713-425-5422 T 713-554-1303 T 713-425-5428 T 713-554-0133 M 210-860-5515 M 832-541-1499 M 281-300-1468 M 713-897-9670 M 832-457-7843 debt & structured finance Adam Allen Tip Strickland David Schwarz Purvesh Gosalia [email protected] [email protected] [email protected] [email protected] T 713-425-5433 T 713-337-5810 T 713-337-5811 T 713-300-7954 2 M 713-824-6066 M 832-724-4288 M 713-412-9055 M 313-570-5221 EXECUTIVE SUMMARY 4 PROPERTY SUMMARY .........................................5 INVESTMENT HIGHLIGHTS ................................. 6 PROXIMITY TO MAJOR EMPLOYERS .....................11 AREA ENTERTAINMENT ..................................... 17 EDUCATION ......................................................19 PROPERTY DETAIL 20 PROPERTY DETAILS ...........................................22 TABLE OF CONTENTS COMMUNITY AMENITIES & FEATURES ............... 26 FLOOR PLANS .................................................. 28 FINANCIAL ANALYSIS 30 PROFORMA ...................................................... 31 UNDERWRITING ASSUMPTIONS ........................32 MARKET OVERVIEW 34 RENT COMPARABLES SUMMARY .......................35 APPENDIX 36 NEWS ARTICLE .................................................37 BROKERAGE RELATIONSHIPS ........................... 38 DISCLAIMER .................................................... 39 3 executive summary GALVESTON BAY texas a&m 3 university PELICAN ISLAND 2 PORT OF GALVESTON GALVESTON CHANNEL 1 utmb GALVESTON 4th street ferry road emerald by the sea condominiums seawall blvd sandpiper 4 stewart beach rv resort # POINT OF INTEREST DISTANCE TO PALM SHORE EMPLOYMENT STUDENTS 1 UTMB Galveston 850 Feet 13,000 3,169 2 Port of Galveston 1.25 Miles 14,000 N/A 4 3 Texas A&M University 2.5 Miles 350 2,324 4 Stewart Beach 1,000 Feet N/A N/A property summary 615 Holiday Drive ADDRESS 402 Church Street Galveston, TX 77550 located in the heart of galveston TERMS All Cash walkable to utmb galveston and SUBMARKET Galveston/Dickenson stewart beach NUMBER OF UNITS 88 proven value-add opportunity with YEAR COMPLETED 1971 ample upside in rents AVERAGE UNIT SIZE 788 SF rentable square feet 69,342 SF ancillary income upside MARKET RENT PER UNIT $988 significant capex invested by current MARKET RENT PER SF $1.25 owner OCCUPANCY 93% (07/19) strong submarket fundamentals ACREAGE & DENSITY 1.21 Acres | 72.60 Units/Acre galveston INDEPENDENT School of choice district SCHOOL DISTRICT 5 Investment Highlights Located in the Heart of GALVESTON BAY Galveston Walkable to texas a&m 3 PELICAN ISLAND UTMB Galveston and university Stewart Beach 2 PORT OF GALVESTON GALVESTON CHANNEL • Palm Shore benefits from an excellent location in the heart of Galveston walkable to major employers and 1 utmb GALVESTON neighborhood amenities including UTMB’s Galveston Campus and Stewart 4th street Beach ◊ UTMB Galveston (850 ft): Public ferry road emerald by the sea hospital and medical school that is condominiums one of Galveston’s largest employers seawall blvd sandpiper with a staff of 13,000 people and 3,169 4 stewart beach rv resort students # POINT OF INTEREST DISTANCE TO PALM SHORE EMPLOYMENT STUDENTS 1 UTMB Galveston 850 Feet 13,000 3,169 ◊ Stewart Beach (1,000 ft): Galveston’s 2 Port of Galveston 1.25 Miles 14,000 N/A premier family beach park with plenty 3 Texas A&M University 2.5 Miles 350 2,324 4 Stewart Beach 1,000 Feet N/A N/A of amenities including lifeguards, chair/umbrella rentals, beach volleyball courts and more ◊ Port of Galveston (1.25 miles): The 5th busiest cruise port in the nation which employs approximately 14,000 people ◊ Texas A&M Galveston (2.5 miles): A 135-acre campus specializing in maritime studies with a faculty of 350+ people and student body of 2,324 6 Investment Highlights Proven Value-Add Opportunity with Ample Upside in Rents • The current owner has partially renovated 34 units with new appliances (27 white and 7 stainless Partially Renovated - 615 Holiday Partially Renovated - 402 Church steel), laminate countertops, updated lighting/ fixtures, faux-wood flooring, and the installation of ceiling fans • Renovated units are leasing for premiums up to $150 per month over non-renovated units depending on the individual floorplan and if it includes stainless steel appliances or not • A new owner will have the ability to renovate all 88 units with high-end countertops and appliances, a tile backsplash, modern lighting and fixtures, and continue to install faux-wood flooring Subject Rent Comparables Residence at West Property Name Palm Shore Chateau Lafitte Ebbtide Seaside Village Oceanfront Lofts Beach YEAR BUILT 1971 1970 1977 1963 1972 1986 EFF. RENT/UNIT $988 $1,146 $1,215 $1,236 $1,301 $1,251 EFF. RENT DELTA $158 $227 $248 $316 $263 FLOORING FAUX WOOD/TILE FAUX WOOD/TILE FAUX WOOD FAUX WOOD/TILE FAUX WOOD FAUX WOOD APPLIANCES WHITE WHITE STAINLESS STEEL WHITE WHITE STAINLESS STEEL COUNTERTOPS LAMINATE LAMINATE GRANITE LAMINATE LAMINATE GRANITE CLASSIC STYLE REFINISHED FRONTS CABINETS (HARDWARE) NEW FRONTS (YES) NEW FRONTS (YES) CLASSIC STYLE (YES) NEW FRONTS (NO) (YES) (NO) FIXTURES BRUSHED NICKEL CLASSIC BRUSHED NICKEL CLASSIC BRUSHED NICKEL BRUSHED NICKEL LIGHTS YES NO YES NO NO YES TILE BACK SPLASH NO NO YES NO NO NO 7 Investment Highlights Ancillary Income Upside • Under the current management structure most utilities are provided by the community and included in market rent • A new owner has the ability to charge residents for utilities currently included in rent and increase RUBS income by over $75,000 annually* • A new owner also has the ability to implement valet trash service and charge residents $25-30/month 615 HOLIDAY DRIVE 402 CHURCH STREET Water/Sewer Flat Fee of $40-$55/month Provided by the Property Electricity Provided by the Property Sub-metered Gas Provided by the Property Provided by the Property Trash Provided by the Property Provided by the Property *assumes a flat fee of $75/month and 95% occupancy Significant Capex Invested by Current Owner • Current ownership has invested approximately $465k of capex into the property – the majority of which was spent on exterior and deferred maintenance items inherited from the previous owner • Major items include: ◊ Exterior/Mansard Siding Repairs ($85k) ◊ Roof Repairs/Replacements ($85k) ◊ New Perimeter Fencing ($24k) ◊ Parking Lot Resurfacing ($16k) ◊ Plumbing ($13k) 8 Investment Highlights Strong Submarket Fundamentals Dickinson/Galveston Current Submarket Stats* Galveston/Dickinson Submarket Class A Class B Class C Size (sf) 808 830 876 Price ($/mo) $1,210 $962 $791 Rental Rate ($/sf/mo) $1.50 $1.16 $0.90 Occupancy 91.6% 90.8% 95.1% Occupancy & Rent Growth Trends* Occupancy Rent Growth T3 8.1% 8.3% T6 7.9% 4.6% T12 1.8% 1.8% * Source: ADS Historical Occupancy & Effective Rents Historical Occupancy and Effective Rents Dickinson/Galveston (Dickinson/Galveston Submarket) 930 92.5% 920 92.0% Effective Rent Growth Projections 910 91.5% 2020 900 91.0% 3.6% 890 90.5% 880 90.0% 2021 3.0% 870 89.5% 860 89.0% 2022 850 88.5% 3.6% 840 88.0% 06/2017 09/2017 12/2017 03/2018 06/2018 09/2018 12/2018 03/2019 * No new supply is forecasted through 2021 Price ($/mo) Occupancy (%) 9 Investment Highlights Favorable Galveston County Tax Basis • The Galveston County Appraisal Average Year One Assessed Value % of Sales Price District has historically been Brazoria Fort Bend Galveston Harris Montgomery far less aggressive than Harris County in terms of reassessment following the sale 80% of multifamily properties 79% 78% • According to NKF’s Houston 71% 70% 69% 70% 70% 67% 68% MSA