The Edge Carriage House

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Executive Summary

• Renovating an existing structure in the Edge District and by adding value, create a long-term profitable mixed-use investment.
• Proposal is for an initial investment of $311,000.
• Project would return a total cash flow of $872,721 over a 10 year period.
• After 10 years, property is liquidated returning initial investment plus an additional profit of $67,000.
• Creates an I.R.R. of 31% after taxes and a cap rate of 17%.
• Creates a after tax cash on cash of 34%.
• Total return over $900,000 over 10 year period.

Inception of Idea

• Investigated the Edge District, the Medical District and other areas.
• Edge District won out due to number of recent developments. Looked good for a mixed-use project. Looks like it will be a sustainable area in the future.
• Desired to find a small mixed-use project to learn from.

The Edge District

• Surrounded by a lot of points of interest - the Redbirds Stadium, Sun Studios, and on the edge of Downtown.
• Old Industrial transforming into Cultural urban area.
• High Cotton Brewery, Trolley Stop, Edge Alley, and Mutt Island, just a few.
• New Developments underway - Wonder Bread and The Marshall.
• Creating a New Urban Development where people will live, work, and play, thus sustaining the Edge and adding value and benefit to all stakeholders.

Refinement and Site Selection

• Located properties on Loop Net and Property Shark. Looked at properties on Marshall and Madison. 312 Monroe Ave. interested me because it was a lot less expensive and offers a lot of open space. Very easily modified shell.
• Met the owner, Mr. Gordon who was very kind to tell me about it and give me a tour. It had been the Studebaker/ Packard dealership from 1923 until mid 1950's. Housed many a auto repair shop including his own, Gordon Auto Body. ( Will need a Phase 1)
• Approximately 200 yards from the Wonder Bread development, right next door to Mutt Island, right behind Auto Zone Stadium and a new City and State Coffee store being established next door.
• Beautiful brick exterior and fold out windows and large doors that could be excellent in a retail setting.
• Open space to create a bottom retail area and 4 live/work area on the second floor.

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Estimated Renovation

• Spoke with Mr. Monger with Montgomery Martin and Mr. Grinder with Grinder,Taber, Grinder.
• Explained to them the project- to develop the 8,609 sq. ft. building into two stories - up 4 Live/ Work - 2,152 sq each with 8609 sq. ft open retail downstairs.
• Costs would run $93 to $116 a square foot to renovate.
• Both firms do Build/Design, but work with local architects on plans.
• LRK - John Flint - $89,000 to do plans and pull permits.
• Past History - Phase One - Terracon Consultants,Inc. Glenn -Bartlett- $2,300
• Memphis OPD - Zoned SE- Good to Go!
• Utilities =MLGW and Laurie Associates - decided to separate meter due to unknown retail and only 4 live/work spaces.
• Insurance- $5,000+ a year per John Meeks at Clay and Land.
• Mid South Title - Taylor Hewgley - roughly $6,000 for closing costs - title work, legal tranfer, and survey.
• Hard Costs - $800,000 +
• Soft Costs - $100,000 +
• Total Costs 1 million +/=

Negotiation And Commitment

• Mr. Gordon - $269,000 -$31.25 sq.ft.
• Sales Comparisons - $ 34 - 261 a sq.Ft.
• Offer $250,000 due to known and unknown expenses.

Construction Loan and Permanent Loan

• Spoke with Tom Michael at Financial Federal and Scott Williams at Pinnacle Bank.
• Multiple loan packages available. I.E. Mini-Perm.
• Typical Construction loan - interest only 2-3 years- 4.95% - 5.5%.
• Conventional Loan - depending upon tenants and credit of borrower - 15-20 years - 4.85% - 5%.

Potential Income

• Bob Harrell - Crump Commercial - LoopNet
• Multi-family - $1.29-$1.40 per sq. ft.a month
• Retail - $1.85-$2.50 per sq. ft. a month
• Decided on $1.05 for residential because of large square footage to compete w market - 2% yearly escalation based on current CPI= Consumer Price Index - 4 units - $108,460 a year.
• Decided $2.00 a sq. ft. on retail with no triple net -gaining long term commitment from a retailer that would mix well with the multi-family upstairs - They are responsible for utilities - $206,616 a year.
• Total potential income- $315,000 a year and rising.
• Additional income $2,400 /year for ground maintenance

Operational Expenses

• Accounting/Legal $2,500
• Insurance $5,000+
• Maintenance- $7,000 rising at a rate of 3% per year.
• Management @ 5% of Gross - $21,000.
• Real Estate Tax Estimated at $25,615 per year
• Total expenditures - $ 61,115 and rising

Highlights from CCIM DCF Excel Model

• An I.R.R. - 31% after taxes.
• Cap rate of 17%.
• An after tax cash on cash of 34%.
• DSCR = 2.83.
• LTV - 77.5%.
• Yearly cash flows $84,000 +.

Market Analysis

• If I build it, will they come?
• Population in the 38103 zip code is made up by :
• Metro - Renters - Millennials - 61%.
• Middle Age High Income Lexus Lovers - 33%
• Metro Workers - live elsewhere but work and enjoy the area -3%.
• Seniors - 3%

Pie Graph of Demographics in 38103

Market Analysis Discovery

• Millennials - lots of them and willing to spend money on rent. Like to live in New Urban areas where they work, play, shop, and stay connected. Like to walk or ride bicycles. Like to live a healthy lifestyle.
• Lexus Lovers - high income, very tech savvy.Also enjoy the New Urban areas. Mobile working. - Perfect for Live/ Work spaces. Health is priority.
• Metro workers and seniors also enjoy the shopping and entertainment provided by neighborhood.

Gap Analysis

• Lexus Lovers - ideal tenants for live/work spaces
• What about 8,609sq. ft. bottom retail?
• What do Millennials and Lexus Lovers want?
• Healthy life style.

Specialty Food Store

• Reports show a gap in specialty food stores in the area.
• Curb Market or Ms. Cordelias
• Quiet/ not open late - perfect fit!

Location Feasibility

• Great for pedestrian traffic.
• Poor traffic count- 32 cars on a good day.
• located on fringe of Edge District - 200 +/- from Wonder Bread Complex
• Developing area.

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SWOT Analysis of 312 Monroe

• Strengths - Great Location in in Edge District, Proper Zoning, Versatile Building.
• Weaknesses - Expensive, Poor traffic access, potential environmental concern.
• Opportunities - Growing desire to live is New Urban development, Lots of potential customer base in 38103.
• Threats - Other developments, Economy, Crime.

RISKS

• Market Risk - Where will we be once finished?
• Geographical Risk - Crime? Employers?
• Economic Risk?

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