Investment ProposalThe Acadia
Arlington, Virginia
Morgan Privitte, Will Mu, Ryan Li, Robin Chen & Jennie Sohn
Introduction
Another Option: Condominium Development
OPTION 1
Apartments
OPTION 3
Apartments &Condominiums
OPTION 2
Condominiums
FINALRECOMMENDATION
Property
Basic Information
Location: Pentagon City, Virginia
Type:Class A Apartment Build-ing
Physical Volume: 411 Units
Site: 91,050 SF
Construction Cost
Land Cost (21%) $ 32,904,636
Hard Cost (61%) $ 96,173,519
Soft Cost (14%) $ 21,801,036
Construction Cost before Debt $ 150,879,191
Operating Shortfall $ 127,930
Kettler Fee $ 4,401,815
Construction Cost after Debt $ 155,408,936
Market Analysis
Economic Highlights
Washington Metro Area, 2013
Payroll Employment: 3.0 million at February 2013.
Job Change: grew 45,739 during 2012. Compares to 39,800/year long-term average.
Unemployment Rate: 5.5% at February 2013, down from 5.9% one year ago and lowest among the nation's largest metro areas.
Inflation: prices increased 1.4% during the 12 months ending March 2013.
Housing Prices: increased 6.00% during the 12 months ending January 2013.
Source: Bureau of Labor Statistics, S&P Case Shiller
2006 2007 2008 2009 2010 2011 2012
-30%
-20%
-10%
0%
10%
20%
30%
40%28.8%
7.8%
DC Metro Area ResaleYearly Units Sold & Price % Change
Sales Change Price Change
Condominium Market
2006 2007 2008 2009 2010 2011 2012 20130
2000
4000
6000
8000
10000
12000Washington Metro Area Condo Unit Deliveries
Sub MD District No VA
Source: Delta Association, March 2013
Normalized Range
Inventory % Of Metro Sup-ply Years of Supply
The District 339 12% 0.7
Arlington 93 3% 0.6
Alexandria 401 14% 1.6
Fairfax 122 4% 0.5
Loudoun 857 29% 1.7
Prince William 585 20% 1.4
Montgomery 427 15% 0.8
Prince Georges 97 3% 0.6
Total 2,921 1 1 Year
Development Team
JV Partnership
During Construction10% - KETTLER90% - Lion Properties Fund(Clarion Partners)
After Construction100% - Lion Properties Fund(Clarion Partners)
Financial AnalysisOption1: Apartment
7.5%8.0%8.5%9.0%9.5%
10.0%10.5%11.0%
10.6%
8.8%
Assumption and Quick Facts
Monthly AverageRent (2014)
$2.80/SF
Rent Growth 3.5%
Expense Growth 3%
Cap Rate 4.5%
Discount Rate 7.5%
Development Cost $155,208,367
Present Value $176,825,895
Operating CF 43.2%
Sales Reversion 56.8%
IRR 8.8%
Payback Period 10 years
Sensitivity Analysis Best Most-likely Worst
Vacancy Rate 2.5% 4.0% 6.0%
Rent Growth 4.5% 3.5% 2.0%
Expenses Growth 2.0% 3.0% 4.0%Cap Rate 4.0% 4.5% 6.0%Present Value $220 M $177 M $121 MIRR 11.4% 8.8% 4.6%
Holding Pe-riodIRR
Financial AnalysisOption 2: Condominium
ACADIARISK & RETURN ANAL-YSIS
-30% -15% 0% 15% 30%-20%
0%20%40%60%80% Sensitivity Analysis Studio Unit
PriceSelling PaceSelling Price In-crease
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000 Presale
Selling Pace 10 units/ months
Average Price$ 524,896 /unit
$ 591 /sq.ft.
Median Price$ 417,000 /unit
$ 562/ sq.st.
Sale Term 42 months
Pay Back Term 35 months
IRR 35%
$(20,000,000)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000 1 Year Hold
Pay Back Term 60 months
IRR 14%
Financial AnalysisOption 3: Mix
Condominium 211 Units
StrategyPre-sell
10 units/ month
Price $ 591/ sq.ft.
Proceeds $104,979,285
Apartment 200 Units
Strategy
1 year lease up
17 units/ month
10 years holding
Price $ 2.80/ sq.ft.
Present Value $ 90,847,740
Return
IRR 14.4%
Cash Flow 10 years
Liquidity 2/3 of investment
Rent vs. Buy
Buying CostYear 6
Total CostYear 1 to 6 Renting Cost
Year 6 Total Cost
Year 1 to 6
PURCHASE COSTS INITIAL RENTING COSTS Down payment 95,911 Rent deposit 2,313
Closing costs 19,182 Broker's fee -
MONTHLY COSTS $3,779 MONTHLY COSTS $2,831 Mortgage payment 1,445 102,829 Rent 2,814 184,105
Condo fees 410 28,084 Renter's Insurance 17 1,105
Property taxes 289 19,323 Maintenance 682 46,738 Homeowner's insurance 954 63,900 OPPORTUNITY COSTS OPPORTUNITY COSTS S&P 500 investment 9,107 35,633 S&P 500 investment 4,117 12,026
SELLING COSTS LEAVING YOUR RENTAL Closing costs 22,905 Return of rent deposit (2,313)
Remaining principal 335,349 Tax on profit -
Proceeds from home sale (572,614) YEAR 6 TOTALS $54,458 $197,240 $38,089 $197,236
Conclusion
FINAL RECOMMENDATION:1. Continue with construction as planned.2. File application with Arlington County to convert top 9 floors (approx.
200 units) into condos.3. Create teams to market the property. 4. Begin to prelease the apartment units, and presell condominium units.
OPTION 1:Apartments
OPTION 2: Condominiums
OPTION 3:Apartments & Condominiums
Pros • Long-term Return• Previous Experience
• Low Inventory • Liquidity• Long-term Return
Cons • Over Supply • Temporary Revenue• Marketing Risk
• Opportunity Cost
The Acadia TeamWill Mu
Financial [email protected]
Robin ChenFinancial [email protected]
Jennie SohnProperty Consultant
Ryan LiFinancial Analyst
Morgan PrivitteProperty Consultant
Rent vs. Buy
AssumptionsMedian Home Price $479,555
Down Payment 20%Mortgage Rate 3.5%
Annual Property Tax 0.84%Monthly Condo Fee $371
Closing Cost 4%Term of Mortgage (yrs) 30
Annual Maintenance Cost 1.5%Homeowner's Insurance Rate 2.0%Annual Home Appreciation 3%
Annual Rent Increase 4%Capital Gains Exclusion $5,000,000
Rate of Return on Investment 3%Marginal Tax Rate 28%
Inflation Rate 2%Median Monthly Rent $2,313
Rent Deposit $2,313Renter's Insurance Rate 0.6%
Market Comparable: Apartment
Property Mass Court
The Irene
The Buchanan
Chase Bethesda
Jefferson Thomas Cir.
Year Built 2004 1966 ’71/’00 ’89/’06 2006
Units 371 500 442 122 292
Price 160M 209.3M 175 M 57 M 153.8M
Price/unit $431,267 $418,650 $395,928 $464,213 $526,941
Date of Sales Contr. Apr 12 Mar 12 Dec 11 Dec 11
Cap Rate 4.3% 4.0-4.25% 4.6% (including commercial space)
3.75% 4.25%
Submarket Northwest, D.C. Bethesda, MD Arlington, VA Bethesda, MD Northwest, D.C.
Market Comparable:Condos
Condominium Price Bed Sq.Ft.Price
/Sq.Ft.Built
Arlington-22202
3650 S Glebe Rd., #665, Arlington, VA 544,900 2 1200 454 2007
3600 S Glebe Rd., #418W, Arlington, VA 539,900 2 1242 434 2006
3600 S Glebe Rd., #408W, Arlington, VA 325,000 1 669 485 2006
3600 S Glebe Rd., #606W, Arlington, VA 239,900 0 411 583 2006
Arlington-All
1881 N Nash St., #610, Arlington, VA 1,299,555 2 1800 721 2009
4195 S Four Mile Run Dr., #203, Arlington, VA 383,900 2 1180 325 2006
1201 N Garfield St., #711, Arlington, VA 589,000 2 980 601 2006
3650 S Glebe Rd., # 665, Arlington, VA 544,900 2 1200 454 2007
2001 15th St., N, #1505, Arlington, VA 975,000 2 1396 698 2006
4167 S Four Mile Run Dr., #403, Arlington, VA 381,900 2 1135 336 2006
888 N Quincy St., #2107, Arlington, VA 792,500 2 1248 635 2007
2220 Fairfax Dr., #206, Arlington, VA 559,000 2 1178 474 2007
1800 Wilson Blvd., #438, Arlington, VA 495,000 1 870 568 2007