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TABLE&OF&CONTENTS&1.0&EXECUTIVE&SUMMARY........................................................................................................................................................................4&
2.0&PROJECT&OVERVIEW...........................................................................................................................................................................8&
2.1&Regional&Competitive&Advantages..........................................................................................................................................8&2.2&Subject&site.............................................................................................................................................................................9&
2.3&Site&Development&Constraints..............................................................................................................................................14&
3.0&MARKET&ANALYSIS..16&
3.1&Macroeconomic&Trends...............................................................................................................16&
3.2&Use&Analysis......................................................................................................17&
4.0&TARGET&MARKET..20&
4.1&Residential............................................&...................................................20&
4.2&Retail&..................................................................................................21&
5.0&DEVELOPMENT&PROPOSAL...23&
5.1&Vision..................................................................................................................24&
5.2&Retail&Core..................................................................................................24&
5.3&Public&Spaces..............................................................................................29&
5.4&Housing&Options.......................................................................................29&
5.5&Development&Layout.....................................................................................30&
5.6&Phasing&Strategy...............................................................................................32&
6.0&STRATEGY..34&
6.1&Option&1:&Project&Shut]Down........................................................35&
6.2&Option&2:&The&Village.................................37&
6.3&Option&3:&Gradual&Exit.........................................................................................40&7.0&RECOMMENDATION............................................................................................42&
&8.0&APPENDICES...................................................................................................................A1&
9.0&ACKNOWLEDGMENTS&.........................................................................................................................................................................&***
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1.0*EXECUTIVE*SUMMARY*&
Site*Details&
The& Village& at& Point& Defiance& is& one& of& the& last& remaining&undeveloped&waterfront&parcels&south&of&Seattle.&With&one&mile&
of&waterfront,&this&97&acre&site&is&situated&in&the&Town&of&Ruston&
and&City&of&Tacoma.&&
&
The&Village&is&located&adjacent&to&Point&Defiance&Park,&with&direct&
access&from&downtown&Tacoma&along&Ruston&Way.&&This&702]acre&
park& features&a& zoo,&aquarium,& and&Owen&Beach,& and& has& over&
two& million& visitors& per& year.& Ruston& Way,& just& south& of& The&
Village,& is& a& 2.2]mile& long& waterfront& drive.& & Ruston& Way& also&
serves& as&a& recreational& destination& for&many& locals&and&is& well&
known& for& its& waterfront& Restaurant& Row& featuring& seven&
popular& local&restaurants.& & In&short,& this& site& is&in& an&attractive&
area&due&to&its&diverse&amenities.&&
&
This& site& was& formerly&home& to& the& ASARCO& smelter,& but& was&
forced&to&close&by&the&EPA&due&to&environmental&contamination.&
Since& then,& $100& mill ion& has& been& spent& on& clean& up& and&
remediation& on& the& site.& According& to& the& developers&
environmental& assessment& reports,& the& site& is& now& fit& for&development.&&
&
*
*
*
*
*
*
Site*Strengths*
Attractive)location:&Near&Point&Defiance&Park,&Point&Defiance&Triangle,&and&Restaurant&Row&
Public)stakeholders:&City&of&Tacoma&is&building&a&1.1]mile&long&public&promenade&on&the&property&
Large)size:&Undeveloped&land&of&this&size&is&rare&in&this&area&
Unique)Space:&No&other&flat&developable&waterfront&property&available&between&Tacoma&and&Sea]Tac&
&
&Figure&1.&View&of&Mount&Rainier&
&*
*
*
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Site*Challenges*
Negative)History:&Previous&industrial&use&caused&significant&environmental&damage&
Development)Constraints:&Height&restrictions,&view&corridors,&open&space,&parking,&and&capping&requirements&
Two)Municipalities:&Site&use&must&adhere&to&both&Tacoma&and&Ruston®ulations&
&
Target*Market**
The&target&market&can&be&broken&into&two&main&categories:&&
Residential*Uses:*&
Downsizers& Young&Professionals& Active&Military&Personnel& &
&
&
*
*
*
*
*
*
*
*
*
*
*
*
Retail*Uses:*
Point&Defiance&Park&&Ruston&Way&Traffic& Art&&Culture&Lovers& Visitors&from&Pierce,&Thurston&and&South&King&counties&
&
Project*Summary*
Development*Proposal*
Our& recommendation& is& to& pursue& the& following& strategy,&
developing&The&Village&at&Point&Defiance.&&However,&this&strategy&
involves& additional& equity& and& exposes& Point& Ruston& Group& to&
both&market&risk&and&risk&tied&to&the&destination&retail&core&of&the&
village.& & We& include& in& the& report& two& additional& options& that&
differ& in& their&exposure& to& risk,&demands& for& additional& equity,&
and&financial&performance.&&
*
*
*
*
*
*
*
&&
&
&
&
&
&
&
&
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The&ultimate&objective&for& the&subject&site&is& to&create&a& legacy&
for& the& region& while& profiting& from& this& development&
opportunity.& & This&will& be&done&by&creating&a& destination& retail&
center& that& combines& shopping,& dining,& art,& and& culture.& The&
retail& core& will& be& surrounded& by& its& own& unique& and& active&
residential&neighborhoods.&&The&Village&will&create&a&community&
environment& while& providing& a& waterfront& high& street&
neighborhood& and& the& best& mountain& and& water& views& in&
Tacoma.&In&order&to&fulfill&this&vision,&the&development&has&been&
designed&with&five&key&goals&in&mind:&
&
1. Maximize&water&views&2. Create&a&lively&waterfront&3. Ensure&pedestrian&accessibility&4. Establish&a&cultural&and&artistic&hub&5. Meet&financial&hurdles&and&achieve&a&10%&cash&on&
cash&return&if&possible&
&
Development*Mix*
We& believe& a& mix& of& retail,& townhomes,& apartments,& and&
condominiums& optimize& the& sites& competitive& advantages&
making&it&the&highest&and&best&use.&&The&Village&at&Point&Defiance&
is&a&mixed]use&development&comprised&of&the&following&mix:&
&
&
&
&
&
Strategy*
Clearwaters& strategy& for& The& Village& is& to& build& a& mixed]use&
development&community&with&a&destination&retail&core.&&Due&to&
the&magnitude&of&this&project,&there&is&a&large&risk&potential.&&To&
help&mitigate&this&risk,&Clearwater&has&implemented&a&strategy&to&
return&equity&as&soon&as&possible&to&the&Point&Ruston&Group&in&a&
manner& that& sustains& the& vision& of& the& development.& & This& has&
been& achieved& through& solely& developing& the& retail& core& and&
three&apartment&buildings,&with&the&remaining&land&to&be&sold&to&
builders.&&In&this&report&we&present&massing&and&design&diagrams&
of&the&buildings& in&the&lots&that&will&be& sold,&but&ultimately& the&
building& appearances& and& uses&will& be& at& the& discretion& of& the&
builders.&& By&selling& land&instead&of& building&in& later& phases,&we&
are&able&to&minimize&the&roll]over&equity&required,&which&allows&for& a& quicker& return& of& equity.& & It& is& clear& from& the& financial&
milestones&that&PR&Group&wanted&to&realize&returns&throughout&
the& project,& with& a& large& portion& early& on.& & Therefore,& even&
though& not& all& financial& milestones& were& met,& Clearwater&
prioritized& by& returning& equity& as& early& as& possible& in& the&
development&process&to&PR&Group.&&&
&
Project*Risks*
PR&Group&has& invested&$35M& of&equity& in& this& project& to&date.&&
The¤t&strategy¬&only&has&a&high°ree&of&risk&due&to&its&
16]year& project& length,& but& it& also& relies& on& the& success& of& the&
retail& core& as& a& destination& site.& Relying& on& roll]over& equity&
creates&addition&risk&if& there&isnt&enough&money&in&the&previous&
year&to&sustain&a&future&years&costs.&&The&destination&retail¢er&
is&expected&to&sustain&itself&due&to&its&desirability&to&residents&in&
the&surrounding&areas&as&well&as&the&initial&residents&living&at&The&
Village.&&This&desirability&of&the&retail¢er&will&allow&a&premium&
to&be&charged&when&selling&land.&&&&&
Apartment&
(units)&
Condos&
(units)&
Town]
homes&&
Total&
(Units)&
&Retail&
(SF)&
Parking&
Stalls&
353& 1338& 160& 1851& 148,800& 3,650&
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&
&
Financial*Return*
The&project&provides&a&levered&IRR&of&8.27%,&from&the&years&2006&
to&2028.&&Including&Copperline&and&Stack&Hill&cash&flows,&the&net&
present&value&for&The&Village&is&$&(9,751,000).&
&
*
*&
*
*
*
*
*
**
Financial*Summary**** **
** **
Additional&Equity&Required& $25,261,000*
Additional&Bank&Loan&Required& $73,375,000*
Revenue&from&Buildings&and&Land&Sales& $232,164,000*
Construction&&Site&Improvements& $72,271,000**
Debt&Repayment&&Interest& $87,420,000**
Operating&Cost&(Overhead&and&Property)& $3,757,000**
LID&&Environmental& $13,376,000**
&& **
&&**NPV&for&The&Village&@&10%&Discount&Rate& *$***(9,751,000)*
Levered&IRR&for&The&Village/Copperline/Stk&Hill& 8.27%*
Fi ure!2.!Museum!
!
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2.0*PROJECT*OVERVIEW*Figure&3.&Regional&Context&Map&
&&
2.1®IONAL&COMPETITIVE&ADVANTAGES&
&
Regional*Context*
The& subject& site& is& located& within& Pierce& County,& Washington,&
with&portions&of& the& site& lying&in& both& the& Town&of&Ruston&and&
City&of&Tacoma.&
Pierce& County& is& situated& between& Puget& Sound& and& the&
Cascade&Mountains.& The& county& is&home&to& one& of& the& 30&
largest&ports&in&the&United&States&as&well&as&Joint&Base&Lewis]&
McChord&]&one&of&the&largest&military&bases&in&the&nation.&
&
Figure&4.&Downtown&Tacoma& & &&&&&&&Figure&5:&Glass&Artwork&
&
&
&
&
The& City& of& Tacomas& heritage& is& a&
working& city:& a& port,& mill,& and&
industrial& city.& Many& of& these&
industries& have& been& in& decline,& but&
the& city& has& recently& undergone&
revitalization.&Over&the&past& two&decades,&developments&in&
the&downtown&core& have&included&the& states& first&modern&
electric& light&rail& service& and& the&University& of&Washington&
Tacoma& Campus.& Further,&downtown&Tacoma& is&known&for&its& thriving& arts& and& culture;& it& is& home& to& numerous&
performance¢ers&and&museums&such&as&the&Museum&of&
Glass&and&the&Tacoma&Arts&Museum.&&
*
*
*
*
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Figure&6:&Tacoma&Museum&of&Glass&
*
*
*
**
*
*
*
*
Local*Economy&
Pierce& County& has& been& relatively& insulated& from& the& turmoil&
experienced& by& other& major& metropolitan& regions.& Economic&
growth&in&2012&is&forecast&to&be&2.7%,&and&is&expected&to&increase&further& in&2013&and&beyond.& Pierce& County&has& a&population&of&
approximately& 800,000& and& over& the& past& two& decades,& the&
population&grew&at&a&faster&pace&than&that&of&King&County,&as&well&
as& the& entire& nation.& For& the& next& three& years,& population& is&
expected& to& increase& at& a& rate& of& 1.4%& per& year,& which& is&
substantially& higher& than& the& annual& growth& rate& of& 0.3%& from&
2008]2011.& Employment& is& expected& to& grow& by& 1.5%& annually&
over&the&next&five&years,&primarily&in&Tacomas&transportation&and&
warehousing§or.&
&Figure&7.&Seattle]Tacoma]Bellevue&MSA&Annual&GDP&Growth&Rate&
&&
Source:&U.S.&Bureau&of&Economic&Analysis&&
Figure&8.&Pierce&County&Population&Growth&Rate&
&Source:&U.S.&Bureau&of&Economic&Analysis&
&
2.2&SUBJECT&SITE&Figure&9.&Subject&Site&Aerial&View&
&
]10%&
0%&
10%&
2002& 2004& 2006& 2008& 2010&
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&
97&acres&of&waterfront&property,&a&prime&location,&and&stunning&
views&are&the&key&features&that&define&this&unique&site.&Located&at&
the&intersection&of&Ruston&Way&and&North&51st&Street&in&Tacomas&
North&End,&the&property&borders&the&municipal&line&between&the&
Town& of& Ruston& and& City& of& Tacoma.& Situated& along& a&mile& of&
Puget& Sound& shoreline,& the& site& is& only& minutes& away& from&
downtown&Tacoma.&
&Figure&10.&Views&of&Commencement&Bay &
*
*
*
*
*
*
*
*
*
*
*
*
*
Static*Attributes*The& site&is& 97&acres.&A& gradual&slope&creates& a&grade& change& of&
137&feet&between&the&highest&point&on&Stack&Hill&and&the&lowest&
point&on&the&Waterwalk.&
&
Location*&*Accessibility*&
The&site&is&approximately&40&miles&south&of&Seattle&and&6.5&miles&
northwest&of&Tacoma.&
&Figure&11.&Site&Access&Points&
**
Access& to&the& subject& site& is&by& two& local&arterials:&North&Pearl&
Street& and& Ruston& Way.& North&Pearl&Street& has& four& lanes& and&
connects& to&Hwy& 16,& while&Ruston&Way& is& a& two]lane& highway&
along& Commencement& Bay& to& downtown& Tacoma.& It& also&
connects&to&the&Interstate&5&(I]5).&
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&
The& site& is& currently&underserved&by& public& transportation.&The&
City& of& Tacoma& has& plans& to& improve& coverage& in& the& area& by&
placing&a&bus&stop&at&the&entrance&of&the&site.&
&Pedestrian&connectivity&will&be& excellent.&The& City&of& Tacoma& is&
constructing&a&pedestrian&path,&known&as&the&Waterwalk,&on&the&
property&along&the&bay&that&will&connect&Ruston&Way&and&Point&
Defiance&Park.&This&will&be&completed&in&Fall&2012.&
*
Background*Figure&12.&ASARCO&Smelter*
&*
&
&
&
&
&
&
&
The& subject& site& was& formerly& the& home& of& a& copper& smelter&
operated&by&ASARCO.&ASARCOs& smelter& processed&copper& and&
heavy&metals&for&nearly&a¢ury.&For&many&years,&ASARCO&was&
one& of& the& largest& employers& in& the& county,& with& over& 1,300&employees.&
&
&
There&were&major& complaints& and&concerns& regarding&pollution&
from& the& smelter& asserted& by& the& surrounding& neighborhood.&
Although&ASARCO&attempted&to&mitigate&its&pollution&production,&
constant& pressure& from& both& the& community& and& various&
government&agencies&continued.&Eventually&in&the&mid&1980s,&the&
United&States&EPA&ordered&the&plant&to&close.&Over&the&past&25&years,& $100& million& has& been& invested& in& the& cleanup& and&
remediation&of&the&site.&
&
&
&
&
&
&&
&
&
*
*
*
&
&
Current&Developments:&
1.Copperline:& 173& apartment& units& and& 44& condominium&units&
2.Stack&Hill:&12&&acres&consisting&of&36&custom&homes&3.Hotel:& Tract&6& on&subject& site& has& been& sold& to&a& private&
hotel&operator&(Silver&Cloud&Inns&&Hotels)&
4.Waterwalk:& The& City& of& Tacoma& is& building& a& 1.1]mile&Waterwalk& on& the& shoreline& of& the& property& linking&
Point&Defiance&Park&with&Ruston&Way&
&&
&
&
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&
&
& & & & & && Figure&13.&Surrounding&Attractions&
&
*
*
*
*
*
*
*
*
*
*
**
*
*
*
*
*
*
*
*
*
*
Local*Neighborhood*&
Immediately& west& of& the& site& is& one& of& South& Puget& Sounds&
greatest&attractions,&the&702]acre&Point&Defiance&Park.&It&features&
Point& Defiance& Zoo& & Aquarium,& Owen& Beach,& and& attracts&
approximately&two&million&visitors&annually.&As&one&of&the&largest&&
&
&
&
&
&
&
&
&
&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&
&
Urban&parks& in&the&United& States,&Point&Defiance& Park¬& only&
appeal& to& locals,&but&also& to&visitors&from&other&parts&of&Pierce,&
Thurston,& southern& King& counties.& & There& is& currently& a&
coordinated& effort& led& by& Metro& Parks& Tacoma& to& develop& a&
section& of& Point& Defiance& Park.& Known& as& the& Point& Defiance&
Triangle,&this&development&will&be&completed&in&Spring&2013&and&
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will& link& the& park& to&the& subject& site&and& Ruston&Way.&Both& the&
Town& of& Ruston& and& City& of& Tacoma& intend& to& transform& this&
region& into& one& of& the& most& attractive& places& in& all& of& Pierce&
County.& Currently& the& Point& Defiance& Triangle& area& is& under]
developed,& but& with& improvements& it&will& attract&more& visitors&
from&across&the&state.&Improvements&include&academic,&parks&&
recreation,& professional,& and& retail& activities.& Additionally,&
Tacoma& Yacht& Club,&which& attracts&boat&owners& from&all& across&
the&Pacific&Northwest,&is&set&for&a&complete&renovation&beginning&
in&Fall&2012.&This&revitalization&will&further&enhance&the&amenities&
surrounding&the&site.&&
&Figure&14.&Point&Defiance&Zoo&&Aquarium&&
&&
East&of& the&property&is& Ruston&Way,&a& 2.2]mile&road& connecting&
Point& Defiance& with& downtown& Tacoma.& Activities& along& the&
waterfront& include& walking,& fishing,& and& picnicking.& With& daily&
traffic&counts&ranging&between&7,000&and&10,000&vehicles,&Ruston&
Way& is& one& of& the& more& prominent& gateways& of& the& greater&
Tacoma®ion.&&
&
Ruston&Way&is&also&home&to&many&of&Tacomas&most&popular&
restaurants,& and& is& colloquially& referred& to& as& Restaurant&
Row.&Figure&15.&Ruston&Way&Walkway&
&&Figure&16.&Ruston&Way&Restaurant&
&
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&
The&sites&surrounding&attractions&are&some&of&the&most&popular&in&
Pierce&County.&&Thus&making&the&sites&location&one&of&its&strongest&
attributes.&&
&
2.3&SITE&DEVELOPMENT&&
CONSTRAINTS&*
Zoning*
The& property& is& fully& entitled.& The& site& was& platted& using& a&
boundary&line&adjustment&in&2008,&which&resulted&in& developable&
tracts& and& parcels& in& both& municipalities.& Under& the& Tacoma&
Municipal& Code,& the& site& is& designated& as& the& S]6& Ruston& Way&
Shoreline&District,&and&under&the&Town&of&Ruston,&it&is&part&of&the&
Citys&Master&Development&Plan&(MDP)&Zone.&The&entire&property&
is&fully&vested&and&entitled&to&allow&for&a&mix&of&commercial&and&
residential&uses.&
&
*
*
*
*
**
*
View*Corridors*
According& to& both& municipalities& codes,& views& for& residents&
south&of&the&site&must¬&be&hindered.&In&order&to&protect&their&
view&corridors&across&the&site&have&been&strategically&placed.&
*
Open*Space*
50%&of&the&site&must&remain&as&open&space.&Open&space&include&
parks,& undeveloped& areas,& water& parcels,& and& access& ways& for&
automobiles,&pedestrian&walkways,& plazas,&shorelines,& setbacks,&
and&view&corridors.&
&
Building*Restrictions*
The&property&is& not&subject&to& FAR&restrictions;&however,&there&are&numerous&height&and&setback&constraints&that&vary&across&the&
97&acres.&In& addition,& no&structure& can& be&built& on&the&Ruston]
Tacoma&border.&See*Appendix*A*
*
Parking*Requirements*
Parking& on& the& site& must& be& built& above& grade& because& of&
geophysical&constraints.&Parking&requirements&on&the&entire&site&
follow&the&Ruston&MDPs&parking&space&standards.&&
See*Appendix*B*
&
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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Environmental*
Soil& on& the& site& contains& arsenic& due& to& contamination& by& the&
ASARCO& smelter.& In& conjunction& with& the& EPAs& remediation&
process&for&the&property,&all&softscape&areas&must&be&capped&with&
an& impermeable& liner.& Hardscape&and&building& foundations& will&
serve& as& the& cap& for& the& rest& of& the& site.& This& process& may& be&
problematic& for& the& sites& rainwater& drainage& as& lining& and&
capping&the&ground&may&cause&water&to&pool&instead&of&drain.&
&Figure&17.&Site&Constraints&&
&
&
After& confirmation& by& the& client& and& further& research& with&
cleanup&and&remediation&engineers,&Point&Ruston&LLC&reports&to&
us&that&the&site&is&safe&for&residential&and&commercial&uses.&&
&&
&
&
&
&
&
&
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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3.2&USE&ANALYSIS&
&
In&this§ion&Clearwater&analyzes&different&land&uses&to&identify&
the& use& that&would&best&match& the& subject& sites& development&
potential&and&identify&development& timing&given¤t&market&
conditions&and&expected&future&growth.&
&
Apartments*
*
Figure&23.&Multifamily&Residential&Apartments&(Rental&of&units) *
*Source:&Kidder&Matthews&2011&Q4&Apartment&Regional&Data&
*
A& lack& of& new& construction,& strong& absorption& rates,& and& low&
vacancy&is&forecast&to&increase&demand&for&apartments&in&coming&
years.&Pierce&Countys&apartment&vacancy&rate&is¤tly&7.1%.&
This& high& vacancy& rate& should& not& be& attributed& to& a& lack& of&
demand,& but& rather& a& shock&in& supply& due& to&condominium& to&
apartment& conversions.& Vacancy& rates& are& expected& to& then&
decrease& to& 6.2%,& 4.5%& and& 2.6%& in& 2013,& 2014,& and& 2015&
respectively.&
&
Absorption& rates& in& Pierce& County& and& South& King& County&combined&are& expected& to& range&between&900& and&1,300&units&
annually& for& the& next& three& years& ]& a& significant& improvement&
compared&to&the&past&decade.&However,&as&households&age&they&
move& into& age& cohorts& with& higher& rates& of& homeownership.&
Consequently,&rental&unit&absorption&will&decrease&after&2020.&&
&Figure&24.&Apartment&Absorption&&Average&New&Construction&&
& & & New&Construction&based&on&20&years&long&run&average&
&Source:&Kidder&Matthews&2011&Q4&Apartment&Regional&Data&
&
During&the&past&three&years&in&Pierce&County,&the&average&rental&
rate& has& only& increased& by& 3%.& Rental& rates& are& expected& to&
increase&by&6%&over&the&next&three&years.&Historically,&rents&have&
grown&slight&more&than&the&rate&of&inflation.&&
&
0%&
1%&
2%&
3%&
4%&
5%&
6%&
7%&
8%&
9%&
&(1,500)&
&(1,000)&
&(500)&
&]&&&&
&500&&
&1,000&&
&1,500&&
&2,000&&
1991& 1995& 1999& 2003& 2007&
New&
Supply&
&]&&&&
&100&&
&200&&
&300&&
&400&&
&500&&
&600&&
&700&&
&800&&
&900&&
2012& 2014& 2016& 2018& 2020&
Absorpon& New&Construcon&
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On&the&investment&side,&the&apartment&market&is&showing&signs&of&
recovery.& Cap& rates& are& trending& downwards& towards& pre]
recession&levels.&&
Figure&25.&New&&Old&Apartment&Building&Cap&Rates&&
For& the& subject& site,&
apartments& are& suitable& for&
development& as& demand& is&
expected& to& remain& strong&
in&the&near&future.&
&&
Source:&Kidder&Matthews&2011&Q4&Apartment&Regional&Data*
*Condominiums*
*
Figure&26.&Pierce&County&MLS&Condominium&Listing&Data&
*Source:&Northwest&Multiple&Listing&Service&&December&2011&
&
Pierce& Countys& condominium&market& has& been& in& a& depressed&
state& since& the& onset& of& the& economic& downturn& and& housing&
crisis&in&2008.&While¤t&market&conditions&are&weak,&future&
demand&will&be&driven&by&growth&in&employment,&population,&and&
overall&economic&activity.&
&
Figure&27.&Pierce&County&Average&Condominium&Sales&Volume&&Price&
&Source:&Northwest&Multiple&Listing&Service&&December&2011 &
&
Condominiums& have& faced& difficult&market& conditions& in& recent&
years.&Many&completed&projects&have&had&difficulty&selling&units,&
resulting& in&vacancies&of&up& to&50%& and& some&developers&have&
declared&bankruptcy.& A& lack&of& new& construction,& an& increasing&trend&to& convert& to&apartments,&and& hesitation& from&buyers& to&
commit&to&purchases&is&further&support&of&a&slow&market.&
&
Historic& absorption& rates& and& current& conditions& suggest& the&
monthly&absorption&for&the&next&three&years&in&Pierce&County&will&
be&approximately& 55&units.& Compared& to& recent& years& this& is&a&
substantial& improvement.& In& 2011,& there& were& roughly& 1,100&
0%&
10%&
20%&
30%&
40%&
50%&
60%&
70%&
0&
1,000&
2,000&3,000&
4,000&
5,000&
6,000&
7,000&
8,000&
q1&2008& q1&2009& q1&2010& q1&2011&
Lisngs& Sales:Lisng&Rao&
$0&
$50,000&
$100,000&
$150,000&
$200,000&
$250,000&
$300,000&
0&
200&
400&
600&
800&
1000&
1200&
1400&
1999& 2002& 2005& 2008& 2011&
AnnualUnitSales
Avg&Price&
Condo&Sales&
5.0%&
6.0%&
7.0%&
8.0%&
9.0%&
10.0%&
2000&2002&2004&2006&2008&2010&
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condominium&units&available&for&sale.&At&this&absorption&rate,&this&
equates&to&20&months&of&stock.&
&
As&the&market&gains&momentum,&absorption&should&rise&to&50&to&
60&units&per&month.&If&the&proposed&development&captures&7&to&10%&of&the&absorption,&this&will&support&development&of&50&to&70&
units& per& year.& These& figures& are& based& on& cumulative&
absorptions& and& housing& permits& between& both& Pierce& County&
and&South&King&County.&&
&
Townhomes*
Townhome&supply& in&Pierce&County& is&outdated& yet& demand& is&
expected&to&increase.&
&Based&on& research& of& current& listings,& recent& transactions,& and&
conversations& with& local& brokers,& Clearwater& has& determined&
that&the¤t&stock&of&townhomes&primarily&consists&of&older&
and&outdated&structures& located& in& less&desirable& locations.&For&
the& subject& site,& the& development&of& townhomes& represents& a&
viable,&low]risk&option&especially&in&the&earlier&years&of&the&build&
out.&There&are&no&significant&limitations&on&the&minimum&number&
of& townhomes& that& can& be& built& in& a& phase& (unlike&
condominiums,& where& a& full& building& must& be& built& at& once).&
Additionally,& since& townhomes& are& typically& of& wood]frame&construction&(versus&concrete),&this&translates&into&lower&building&
costs& and& shorter& construction& times.& This& should& result& in& a&
lower&initial&capital&investment&and&a&short&turnover&for&units.&In&
short,& there& is& a& significant& competitive& advantage& associated&
with&building&new&townhomes&since&townhomes&in&Pierce&County&
are¤tly&outdated.&
&
&
Retail*
Pierce& Countys& retail& market& is& currently& over& served& in&many&
aspects&and&is&still&recovering&from&the&2008&recession.&
&
In& 2011,& absorption& was& positive& for& the& first& time& since& the&economic& crisis.& Although& the& retail& market& has& not& fully&
recovered,&employment& and&population& projections& are&positive,&
retail& sales& are& expected& to& increase& by& 3.3%& in& 2012,& and& per&
capita&personal&incomes&are&on&the&rise.&These&signs&point&towards&
an&increase&in&retail&potential.&
&Figure&28.&Retail&Trade&Area&&
&With&approximately&26,000&people&living&within&a&5]minute&drive&
of& the& site,& population& density& of& the& surrounding& area& is& not&
particularly&high.&Analysis&of& the&secondary&trade&area& suggests&
Primary&Trade&Area&=&& Red&Zone&
Secondary&Trade&Area&=& Green&Zone&
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that& the& retail& market& is& over]saturated.& Furthermore,& Tacoma&
Mall,&the&largest&and&most&significant&retail&destination&in&Pierce&
County,&is&only&15&minutes&south&of&the&subject&site.&&
&
There&is&potential&for&a&neighborhood&use&serving&those&people&within&a&five]minute&drive&time&who&are&closer&to&the&site&than&
other&retail&options.&With&an& estimated&12,000&people& close& to&
the&subject&site&and&another&potential&4,000&people&on&site,&there&
is&sufficient&demand&for&an&up&to&40,000&SF&neighborhood¢er.&
Beyond& this,& the& only& alternative&would&be& a& destination& retail&
experience.& There& is&no&destination& retail& south&of&Seattle& and&
the&propertys&close&proximity&to&Point&Defiance&Park&makes&this&
an&attractive&option.&
&4.0*TARGET*MARKET*&
Clearwater&intends&to& develop&a&destination&atmosphere&at& the&
subject&site&that&is&attractive&to&a&variety&of&demographic&groups.&&
&
4.1&RESIDENTIAL&
&
Downsizers*
A& fraction&of&older&adults,&whose& children&have&left& the&nest,&are& looking& to& downsize& from& large& single]family& dwellings& to&
smaller& units.& This& cohort& represents& approximately& 10%& of&
Pierce&Countys&population&and&is&the&fastest&growing&cohort&over&
the&coming&20&years.&The&general&characteristics&include&higher&
than&average&household&incomes&and&preference&for&ownership.&
Often,& the& decision& to& downsize& is& not& motivated& by& financial&
matters,& but& rather& a& transition& in& lifestyle.& This& group& seeks&
secure&and&safe& living&environments&that&offer&recreational&and&
cultural&activities.&
&Figure&29.&Downsizers&
&
&Young*Professionals*
In& Pierce& County,& there& is& a& growing& population& of& young&
professionals.& Attainment& of& high& school& diplomas& and&
undergraduate& degrees& are& both& rising& in& Pierce& County.& This&
group&will&benefit&the&most&from&future&economic&growth&in&the&
region& and& thus& their& incomes& are& expected& to& rise.& Young&
professionals& often& prefer& renting,& as& they& do& not& have& the&
necessary& capital& to& invest& in& ownership,& especially& since& the&
housing&crisis&has&soured&many&young&households&on&the&need&to&
accelerate&a& decision&to& enter& homeownership.&In& addition,& this&
group&tends&to&move&more&than&others&and&is&always&seeking&to&
raise& their& standard&of& living.&Further,&many&of& these& individuals&
enjoy& athletic& activities& and& desire& to& live& near& downtown&
Tacoma.&&
&
&
&
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Figure&30.&Young&Professionals&
**
Military*Personnel*Joint& Base& Fort& Lewis]McChord& is& only& a& 25]minute& commute&
from&Tacoma.&Compared& to&the& last&decade,&there&are¤tly&
15,000& more& service& members& stationed& at& the& base.& This& is&
primarily& due& to& deployment& cycles& and& the& consolidation& of&
smaller&military&bases&across&the&nation.&Despite&expectations&of&
soldiers& returning& from& deployment& over& the& next& few& years,&
Lewis]McChord& is& expected& to& remain& the& same& size& if& not&
expand.& A& significant& number& of& military& personnel& live& in&
apartments& and& condominiums& in& the& downtown& core& and&
according&to&local&brokers,&lower&ranked&staff&tends&to&rent&while&
higher&ranked&officers&tend&to&buy.&
&
&
&
&
&
4.2&RETAIL&MARKET&
*
Currently&in&Pierce&and&Thurston&Counties,&there&is&no&destination&
retail& experience.& The& closest& comparable& retail& experience& is&
downtown&Seattles&Pike&Place&Market.&&
&
Nature*&*Outdoor*Enthusiasts*&Figure&31.&Outdoor&Enthusiasts&
&
The& Pacific& Northwest& is&
home&to&people&who&enjoy&
nature&and&the&outdoors&in&
all & four& seasons.& Active&
living& and& community&
wellness& is& a& growing&
trend& in& the& region,& with&
increasing& numbers& of&
individuals& taking& up&
outdoor& leisurely&
activities.& In& addition,&
public& park& space& and&
green& space& are& also& in&
demand& in& the& region,&
especially& in& and& around&Tacoma.&
&
&
&&
&
&
*
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*
Art*&*Culture*Lovers*
Natives& of&South&Puget&Sound&have&consumer&preferences& that&
revolve& heavily& around& arts& and& culture.&Many& residents& of&the&
region& take& full& advantage& of& the& museums& and& performance¢ers& and& have& a& high& appreciation& for& special& events& and&
festivals.&These& individuals&are&actively&seeking&new& and&unique&
experiences&and&attractions&that&resonate&with&their&interests.&&
&
These& two& latter& groups& present& unique& opportunities& in& the&
sense&that&they&are&large&markets&that&are¤tly&underserved.&
With& the& optimum& mix& of& arts& and& nature,& an& unprecedented&
destination& retail& experience& could& satisfy& the& needs& of& these&
consumers& and& further& attract& visitors& from& all& neighboring&counties.&
&!!!!!!!!!!!!!!!!
!&Figure&32.&Downtown&Tacoma&with&Views&of&Mt.&Rainier&
*
*
*
*
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*
5.0*DEVELOPMENT*PROPOSAL*
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&&&
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&
5.1&VISION&&
The& ultimate& objective& for& the& subject& site& is& to& create& a&
destination&retail¢er&that&combines&shopping,&dining,&art,&and&
natural& beauty& to& create& an& experience& like& none& other& in& the&
region.&A&unique,&walkable&residential&community&surrounds&the&
center,& complete& with& pedestrian& and& bicycle& trails& and&
unmatched& water& views.& In& order& to& fulfill& this& vision,& the&
development&has&been&designed&with&four&key&goals&in&mind:&
&
1.Maximize&water&views&2.Create&a&lively&waterfront&3.Ensure&pedestrian&accessibility&4.Establish&a&cultural&and&artistic&hub&
&
&
&
&
&
&
&
&
&
&
&
&
&
&&
5.2&RETAIL&CORE!&
Close&to& the&waterfront&is&Artists&Row,&the&cultural&
hub&of&the&development.&This&500]foot&long&walkway&
features&a&performing&arts&theatre,&museum,&and&local&
art&gallery.&Also&included&are&work/live&spaces&that&are&
to&be&awarded&to&local&artists.&These&two]story&spaces&
have& street& level& studios& where& artists& can& display&their& works& for& the& public& to& enjoy.& Additionally,& a&
number&of&unique&international&food&stands&face&the&
artists& studios& where& patrons& can& sit& outdoors& and&
watch& the& artists& at& work& or& watch& pedestrians&
strolling&by.&&See*Appendix*F&
&
&&
Figure&33.&Arts&Theatre&
!!
Figure&34.&Public&Market&!
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Figure&35.&Site&Map&with&Building&Uses&&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&&
&
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Figure&36.&Retail&Core&
&&
&
While&cars&are&welcomed&in& The&Village,&we&have&designed&the&
center& to& be& pedestrian& friendly& with& wide& sidewalks& and&
pedestrian&only&corridors&such&as&Artists&Row.&The&retail&village&is&
a& one]park&destination&where&people& can& park& once& and& easily&
access&any&of&the&amenities&offered.&All&of&the&streets&surrounding&
the&retail&core&are&slow&moving,&with&raised&pedestrian&crosswalks&
and& low& speed& limits.& Most& streets& also& have& parallel& parking&
spots,& creating& a& buffer& between& pedestrians& and& the& road.&
Allowing&slow&moving& vehicles&in& the&retail&core& creates&greater&accessibility& and& more& liveliness& than& pedestrian]only& access&
could& alone.& In& addition,& the& street& parking& provided& allows&
visitors& easy& access& to& the& waterfront& without& hindering& the&
walkability&of&the&retail&core&and&waterfront.&
&
&&
&&
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Figure&37.&Open&space&
Linking& the& retail& core&
with& the& Waterwalk& is& a&
15,000& SF& public& market&
located& in& the& center& of&Grand&Plaza.&It&features&a&
fascinating& assortment&of&
colorful&stalls,&showcasing&
homemade& products& and&
the& very& finest& in&
gastronomic&delights.&This&
space& will& be& a& premier&
destination& for& weekly& farmers& markets,& annual& festivals,& and&
arts&& crafts& fairs.& The&public&market& is&a& permanent& structure&
with&garage]style&doors& that&can& be&opened& in&the&summer&but&
closed& in& the& winter,& allowing& for& a& year]round& market&
experience.&&The&Villages&public&market&is&unique&to&the®ion&
and&is&expected&to&attract&visitors&from&Pierce,&King,&and&Thurston&
County.&&
&Figure&38.&&Inside&the&Public&Market&
!!&
Figure&39.&Public&Market&
&
&&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
&
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5.5&DEVELOPMENT&LAYOUT&
&
&Figure&42&Site&Map&with&Neighborhoods&and&Features&
&
&
&
&
&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&
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&&
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&
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While& we& plan& to& only& develop& the& retail& core,& the& following&
district& characteristics& are& what& we& believe& will& be& developed&
over&time&on&the&site&through&the&sale&of&parcels.&&
&
The& character& of& The& Village& comes& from& the& seven&neighborhoods& located&across& the& site.& Created& by&natural& area&
breaks,&these&neighborhoods&have&a&variety&of&building&types&and&
amenities&for&residents&to&enjoy.&
&
Marina*District*
Marina& District& sits& at& the& Northern& end& of& the& site& with&
magnificent& views& of&both&Point&Defiance&Park&and& the&Tacoma&
Yacht&Club.& &This&neighborhood&has&four& parcels,&each&with&two&
condominium&buildings& two& parcels& have& 81&units,& while& the&
remaining& two& have& 100& units.& Parking& for& residents& is& located&
within&the&first&two&floors&of&the&condominium&buildings.&
&
Promontory*Row*
Located&on&the&south&side&of&Yacht&Club&Road&is&Promontory&Row,&
a&small&townhome&community.&It&has&53&townhomes,&each&with&
its& own& garage,& patio,& and& private& backyard& backing& onto&
Promontory&Hill.&&
&
The*Village*The&retail&core&at&the¢er&of&the&site&is&called&The&Village&and&
holds&the&majority&of&the&sites&amenities.&&Along&with&a&variety&of&
retail & already& described,& The& Vil lage& also& has& residential&
apartment&buildings.&
&
Two& of& three& apartment& buildings& located& are& placed& at& the&
intersection& of& Cascade& Avenue& and& Ruston& Wayeach&
containing& 60& units.& &These& apartments& have& a& large& parking&
garage&on&the&first&two&levels&of&the&building,&servicing&both&the&
apartments&and&overflow&parking&from&the&retail&core.&&The&third&
apartment&building&is&located&behind&the&hotel&and&has&60&units.&&&
*
Baltimore*Lane*Baltimore&Lane,& another& townhome&community,& is&planned& just&
behind& The& Village& on& the& north& side& of& Ruston& Way.& &This&
community&has&55&townhomes&and&sits&within&a&short&walk&to&all&
the&amenities&in&the&retail&core.&&
&
Copper*Landing*
South& of& The& Village& on& Main& Street,& Copper& Landing& has& a&
combination&of&condos,&apartments,&and&townhomes,&in&addition&
to& 7,500& SF& of& retail & space.& &With& 214& condo& units,& these&
waterfront&buildings&are&strategically&placed&perpendicular&to&the&
shoreline& in& order& to& maximize& water& views& for& all& units.&
Copperline& Condominiums& and& Apartments& are& also& located& in&
this&neighborhood.&
&
Bayview*Plaza*
Bayview&Plaza&is&situated&south&of&Copper&Landing&on&Main&Street&
and&offers&residential&units.&&Along&with&the&Waterwalk&there&are&
26& townhomes& with& premium& waterfront& views.& Behind& the&
townhomes& are& three& 80]foot,& multi]story& condominium&buildings&that&maximize&water&views&and&contain&living&spaces&for&
463&units.&
*
Rainier*Place*
Rainier&Place&is&located&at&the&far&east&side&of&the&property.&This&
neighborhood&has&four&condominiums&buildings&each&with&35,&52,&
70&and&70&units&respectively,&with&the&first&two&floors&designed&as&
parking&areas.&6,400&SF&of&retail&space&will&also&be&located&along&
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the&Waterwalk.&A&great&design&feature&of&this&neighborhood&is&the&
raised&courtyard&between&the&four&condominium&buildings.&It&has&
a&dual&purpose&of&creating&garden&views&for&the&residents&as&well&
as& incorporating& additional& parking& space& underneath& for& the&
residents.&&Figure&43.&Waterfront&Retail&&Residential&Building&Example&
&&
&
&
&
&
&&
&
&
&
&
&
&
&
&
5.6&PHASING&STRATEGY&
*
Phase*1&
The&Village&will&begin&development&with&the&neighborhood&retail&
center&and&two&apartment&buildings.&The&first&phase&of&the&retail&
center&will&include&an&organic&grocer,&a&drug&store,&a&restaurant,&a&
caf,& a& bank,& two& local& serving& offices,& and& three& local& serving&
CRUs.&The& retail& will&be&placed& along&Ruston&Way,&which&has& a&
daily&traffic&count&ranging&between&7,000&and&10,000.&
&
In& 2014,& Parcel& 11& will& be& sold& to& an& external& developer& for&
designated&townhome&use.&&This&small&community&located&behind&
the&Copperline&buildings&and&to&the&south&of&the&retail&core&will&
help¢ralize&the&site.&
&
*
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Phase*2&
In&2015,&construction&will&begin&on&the&rest&of&the&retail&core.&The&
museum,& performing& arts& theatre,& public& market,& international&
food&plaza,&artist&work/live&spaces,&several&other&boutique&shops,&
and&local&serving&offices&will&be&completed&in&this&phase.&This&will&make& The& Village& a& hub& of&art& and& culture&where&people& from&
surrounding®ions&will&want&to&live&and&visit.&There&will&be&an&
additional&apartment&building&built&in&this&phase.&Residents&of&this&
building& will& help& support& the& retail& as& well& as& liven& up& the&
development.&
*
*
*
*Figure&44.&Selling&Land&
*
*
*
*
*
*
*
*
**
*
*
*
*
*
*
*
Future*Land*Sales*
Past& phase& 2,& Clearwater& recommends& the& client& sell& the&
remaining& parcels& for& development.& In& order& to& maximize&
profitability,&selling&according&to&the&Gantt&chart&is&&
Recommended.&See*Appendix*K.&&
Absorption& rates& have& determined& the& sales& sequence& of& land.&
The& goal& is& to& match& absorption& rates& in& order& to& minimize&
vacancies& throughout& the& development.& This& is& accomplished&
through& staggered& sales& of& parcels& designated& for& townhomes,&
apartments,& and& condominiums.& Certain& parcels& have& been&
identified& as&prime&waterfront& properties&and& thus&will& be&held&
until& later.& These&parcels&(#& 1,&2,& 14,&15)&will&be& sold&last&whilst&
commanding&the&highest&premiums.&
&
&
&
&
&!&!!!!!!!!!!
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6.1*Option*1:*Project*ShutDownOne&option&that&needs&to&be&considered&is&leaving&the&project&in&
its¤t&state&and& walking&away& as&soon&as& the&Copperline&
buildings&are&sold.&Depending&on&whether&or¬&equity&partners&would&prefer&to&realize&their&losses&and&receive&as&much&of&their&
equity& back& as& soon& as& possible,& this& may& be& the& preferred&
solution.&&
&
To&mitigate&the&potential&criminal&and& legal& liabilities&that&would&
result& from& abandoning& an& environmentally& contaminated& site&
that&already&contains&residential&units,&an& impervious&cap&should&
be&installed&on& all& areas&of& the& site.&This&includes&areas& that&do&
not& yet& have& hardscape,& buildings,& or& an& existing& cap.&&
&
By&2014,& as&per& information&provided&by& the&client,&we&assume&
that& the& Copperline& Apartments& and& the& majority& of& the&
condominiums& are& sold& (at& more& reasonable& prices& than& when&
originally& listed).& In& this& case,& there&will& be& sufficient& funds& to&
repay&both& bank& and& private& financing.& & The& remainder& of& the&
condominiums&will&be&sold&in&2015,&which&is&when&capping&of&the&
site& will& be& completed.& &Choosing& this& option& would& result& in&
positive&cash&flows&for&PR&Group& in&2013,&2014,&and&2015.& &The&
final&exit&would&be& in&2015.&The&LID,&which&will& go&unpaid&after&2015,&is&assumed&to&have&a&claim&on&the&remainder&of&the&land.&&
&
&
&
&
&
&
Summary:*
*
Additional&Equity:&&No&additional&equity&requirements&
*Risks:&& Legal&issues&with&environmentally&sensitive&site&
Damage&to&reputation&due&to&abandoning&project&
&
NPV:&& & Loss&of&$36,550,000&&
&
&
&
&
&
&&
&
&
&
&
&
&
&
&
&
&
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6.2*Option*2:*The*Village**
*
Building&The&Village,&a&mixed&use&development&with&a&destination&
retail& core,& surrounded& by& residential& units,& represents& the&
highest& and& best& use& of& the& Subject& Site.& This& option& requires&additional& equity& at& the& start& of& the& project,& as& well& as& a&
postponement&of&the&both&the&$5MM&financial&milestone&in&2013&
and&the&$10MM&milestone&in&2016.&This&option&faces&all&the&risks&
associated&with&a&development&project.&&In&addition,&it&hinges&on&
the& success&of&the& destination&retail& center& both& for& retail& cash&
flow& and& to& justify& price& premiums& for& the& residential&
developments,&and&thus&land&residuals.&&
&
The&equity&contribution,&combined&with&rolled&over&equity&from&
the& sale&of&the& Copperline& apartments& in&2013,& will& be&used&to&
begin& construction& of& a& retail& core& along& with& apartment&
buildings.&This& combination& of&retail& and&rental&apartment&units&
will&initially&be&offered&at&below]market&rents&and&will&begin&the&
process&of&achieving&a& critical&mass&of&residents&and&visitors.&The&
idea&is&to&undertake&a&strategy&which&is&essentially&the&opposite&of&
that&taken&with&the&Copperline&buildings:&Instead&of&building&high]
end&residences&before&any&amenities,&loss&leading&retail&units&will&
be&built& first&to& create& the& reason& for& people& to&go& to&an& area.&&
This&way,&premium&prices&can&be&justified&in&the&future.&&&
It&is&absolutely&essential&that&a&destination&and&a&sense&of&place&is&
created,&even&if&initially&at&a&loss.&The&added&value&to&the&rest&of&
the&development&more&than&outweighs&the&costs&faced&in&building&
the& retail& core& ]& this& is& shown& clearly& when& we& compare& The&
Village&with&an&alternative&strategic&approach&below.&With&a&great&
waterfront&location&and&a&unique&retail&mix,&The&Village&at&Point&
Defiance&will&be&able&to&pull&visitors&and&potential&residents&from&
Pierce& County,& South&King& County,& as&well& as&Thurston&County.&
This&combination&of&waterfront&views&and&destination&retail&will&
allow&for&much&higher&prices&when&selling&land&when&the&critical&
mass&of&activity&and&excitement&is&achieved.&&
Clearwaters&recommendations&are&under&the&assumption&that&PR&
Group&will&be& able& to&provide& the& additional&equity& required&in&
2013.&If&an&additional&equity&partner&was&involved&apart&from&PR&
Group,& this&would&lower& the& project& return& to&the&PR&Group.& If&
this& strategy&is& successful,&The& Village& at&Point&Defiance&will& be&
marveled& for& years& to& come,& showing& what& a& developers&
creativity&and&determination&can&do,&even&in&a&depressed&market&
with&a&tainted&brownfield&site.&
&
In& order& to& ease& future& equity& requirements,& the& equity&
generated&by&Copperline&Apartment&and&Condominium&sales&will&
need&to&be&rolled&over,&so&that&profits&generated&from&this&project&
are& used& for& the& equity& element& of& the& next& phase.& By&
consistently& rolling& over& equity& throughout& the& development&
timeline&and&using&leverage&from&construction&loans,&new&equity&
requirements&are&minimized.&Rollover]equity&is&our&main&source&
of&funds,&so&inherently,&the&ability&to&fund&later&years&depends&on&
the&cash&flows&from&previous&years.&&In& some&ways,&this&limits&PR&Groups& ability& to& remove& equity& until& the& later& years& of& the&
project.& & It& also& exposes& the& project& to& cascading& risks& if& early&
phases&are&delayed&or&perform&poorly.&
&
The&Village&commences&with&a&neighborhood¢er&anchored&by&
a&grocer& and&a&junior& anchor,&at& 69,000& SF&of& total&retail&space.&
Once&it&is&built&and&rents&have&stabilized,&the¢er&will&be&sold&to&
allow&for&more&equity&in&future&phases.&The&neighborhood¢er&
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will& initially&rely&on& residents& from&the& surrounding& community&
within&a&five&minute&drive&time&radius.&In&later&years,&it&will&also&
serve& the& numerous& future& residents& of& The& Village& at& Point&
Defiance.&&Simultaneous&to&the&construction&of&the&neighborhood&
center,& apartments& will& be& constructed.& Although& these&apartments&will&be&rented&out&at&below]market&rents&($1.50&PSF&
based&on&2012)&and&will¬&be&immediately&profitable&as&a&new&
development,& it& will& bring& life& to& the& retail& core& and& entice&
hesitant&renters&to&the&area.&&Our&plan&calls&for&a&destination&retail&
centre,& and& this& necessitates& active& life& on& the& site.& & The&
apartments& help& us& to& achieve& this& goal& early& in& the& project&
before&the&site&is&fully&populated.&
&
The&strategy&is&to&increase&apartment&rental&rates&once&sufficient&
condominiums& have& been& built,& so& that& we& no& longer& need& to&
subsidize&space&to&attract&the&population&that&enlivens&the&retail&
element.&As&condominiums&become&occupied,&apartment&rental&
rates&will&be&increased&until&they&are&at&above&market&rates&to&
adequately& charge& for& the& excellent& location& and& amenities&
provided&by&The&Village.&Keeping&forecasted&absorption&in&mind,&
180&rental&apartment&units&will& be&built& in&total:& 120&units&with&
the&initial&neighborhood&retail¢er&and&then&an&additional&60&
units&in&the&retail&core.&The&retail&core&will&have&a&museum&and&
performing& arts& center,& a& public& market,& an& artists& row,& five&restaurants,& as& well& as& local& serving& office& space.& Like& the&
apartments,& the& retail& core& will& be& a& loss& leader,& where& initial&
tenants& are& subsidized& with& lower& rents& so& that& the& draw& and&
attractiveness&of&the&development&can&be&built&up&over&time.&&
The&presence&of&the&retail&core&and&other&residents&on&the&site&
will&increase&future&absorption&rates&for&residential&uses.&This&
allows&for&more&units&to&be&sold&per&year,&and&correspondingly,&
higher&revenues&from&land&sales&and&a&shorter&overall&project&
length.&The&Artists&Row&live]work&space&will&be&subsidized&to&half]
market&rents&under&the&condition&that&the&artists&showcase&their&
work&space&to&the&public.&We&expect&that&the&artists&presence&
will&have&positive&spin]offs&in&developing&a&community&
environment&and&creating&a&destination&area.&To&maintain&control&of&the&tenant&mix&of&this&integral&part&of&the&site,&the&retail&core&
will¬&be&sold&off&until&all&other&undeveloped&land&parcels&have&
been&sold.&&
&
When&the&retail&core&and&apartment&buildings&have&been&
completed,&land&sales&will&be&timed&to&match&absorption,&with&
zoning&mostly&for&condominium&and&townhome&units&(See&
Appendices&for&detailed&land&sales&in&Option&2).&There&will&be&a&
strong&reliance&on&condominium&land&sales&because&they&are&able&
to&generate&high&land&residual&values,&especially&when&factoring&in&
the&premium&charged&in&later&phases.&Fundamentally,&the&plan&is&
to&sell&land&to&builders&willing&to&pay&the&highest&price.&Although&a&
breakdown&of&expected&property&types&has&been&laid&out,&it&is&up&
to&each&builders&discretion&to&decide&what&is&the&most&profitable.&&
*
Summary:*
*
Additional&Equity:&&$25,261,000&required&over&the&course&of&the&
build&out.&&
Risks:&Cascading&risks&if&early&phases&perform&poorly&significant&
capital&requirements&up&front&&long&duration&for&project&&
NPV:&&Loss&of&$9,751,000&
&
Although&relative&to&the&other&strategies,&Option&2&provides&the&
strongest&return,&the&long&build&out&period&necessitates&a&re]
evaluation&of&goals&and&expectations&on&a®ular&basis.&
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6.3*Option*3:*Gradual*Exit&&
The&third&option& operates&under& the&assumption& that&PR& Group&
investors&are&essentially&tapped&out,&and&are&unable&to&provide&
any& additional& equity,& and& want& to& extract& capital& as& soon& as&possible.&The&basic&strategy&here&is&to&sell&land&for&residential&uses&
as&quickly&as&the&market&allows.&&
&
This& option& would& still& involve& a& renegotiation& of& the& required&
10%&cash]o
