Alison Ettel ▪ Jorge Gomar ▪ Satoshi Matsunaga ▪ Aaron O’Donnell ▪ Jessica Zgobis Ross School of Business University of Michigan Law School Taubman College of Architecture + Urban Planning University of Michigan Fin 565/UP 565 Real Estate Development, Winter 2005 Landmar Landmar k k On Liberty

Alison Ettel ▪ Jorge Gomar ▪ Satoshi Matsunaga ▪ Aaron O’Donnell ▪ Jessica Zgobis Ross School of Business ▪ University of Michigan Law School ▪ Taubman

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Alison Ettel ▪ Jorge Gomar ▪ Satoshi Matsunaga ▪ Aaron O’Donnell ▪ Jessica ZgobisRoss School of Business ▪ University of Michigan Law School ▪ Taubman College of Architecture + Urban Planning

University of Michigan

Fin 565/UP 565 Real Estate Development, Winter 2005

LandmLandmarkark On Liberty


LandmarkLandmark On Liberty

Table of Contents

Letter (AO’D) Page 2

Acknowledgements (AO’D) Page 3

Executive Summary (JZ) Page 4

Site Analysis (AO’D) Page 5Location Page 5History Page 5Potential Page 6

Community & Social Context (JZ) Page 7The Ann Arbor Story. . . Page 7Economics of Density - the efficiency argument Page 8 - the equity argument Page 8Summary

Political & Legal Context Page 9Stakeholder Analysis (AE) Page 9Zoning Classification (JZ) Page 9Parking (JZ) Page 11Liberty Plaza Park (AO’D) Page 12

Market AnalysisIntroduction (JG) Page 14Residential Market (JG) Page 14Retail (JG) Page 15

Table of Contents, Continued

Market Analysis, ContinuedSWOT Analysis (SM) Page 16Retail Composition (SM) Page 17Retail Market Strategy (AE) Page 17Residential Market Strategy (JG) Page 20

Architecture Highlights Designing a Landmark (JZ) Page20Character Through Design (JZ) Page20Retail Floor Plans Page 21Parking Garage Page 22Condo Floor Plans Page 23

Financial AnalysisKey Assumptions (SM & JG) Page 24Revenue Plan (SM & JG) Page 26Project IRR & NPV (SM & JG) Page 26Sensitivity Analysis (SM & JG) Page 27

Conclusion (SM) Page 27



Common Sense Consulting, LLC

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Letter of Introduction

April 15, 2005

Dear Peter,

Common Sense Consulting, LLC is pleased to submit this initial development proposal for Landmark on Liberty, the innovated mixed-use destination pioneering the transition of Liberty Street into Ann Arbor’s third major downtown retail corridor. Attracting people to Landmark on Liberty has challenged us to build upon Ann Arbor’s great people places, such as the Main and State Street areas, respectively. Landmark on Liberty takes the concept of a “people place” to the next level by incorporating great street-level shopping with premium residential condominiums- promoting the urban vitality of Ann Arbor’s downtown.

We firmly believe East Liberty Street is the location of Ann Arbor’s next downtown revitalization. As the name suggests, Landmark on Liberty is the focal point that will bridge the Main Street and State Street area corridors. McKinley’s recent purchase of the TCF building, the incredible success of Lofts 322, and the influx of students in the new dormitory on Washington Street– all within three blocks of this site –further adds to the excitement and potential of this development.

The opportunity to work with an inexperienced landowner on his first stab at real estate development inspired us to take on this project. Each member of our team was motivated by the history of Dale Bell and his family, his experience as a property manager and concerns as a potential developer. The willingness of Mr. Bell, and his son David, to work with us provided us with excellent site information and data for use in this proposal. The Bell Family has been an excellent and patient resource and Common Sense Consulting, LLC is grateful for the opportunity to work with them.

Thank you, Peter, for introducing us to the issues facing developers. For many of us, this course was a first exposure to what it means to be a developer, and current trends in real estate. Without your advice and innovative instruction, this project would not have been as rewarding.

Best Regards,Common Sense Consulting, LLC

Alison Ettel

Aaron O’DonnellJorge Gomar

Jessica Zgobis

Satoshi MatsunagaCommon Sense Consulting, LLC

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Common Sense Consulting, LLC, wishes to thank the following for their valuable assistance to this project.

Easterly View on Liberty Street, From Division Street, as it is Today

• Mr. Peter Allen• Mr. Dale Bell• Mr. David Bell• Mr. Luis Martinez, Lane Allen Architects• The Staff at Serendipity, Versailles, Kim’s

Sports & Martial Arts Supplies, and Le Dog• Mr. Tom Haywood, Director, State Street

Area Association• Ms. Susan Pollay, Director, Downtown

Development Authority, City of Ann Arbor• Mr. Roger Kehm, Vice President of Real

Estate Acquisitions, Retail Brand Alliance• Ms. Connie Rizzolo Brown, Principal,

Integrated Architecture

• All of the speakers and presenters that visited FIN/UP 565, Winter 2005

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Executive Summary

Development Concept With great pleasure, Common Sense Consulting, LLC presents Landmark on Liberty. Innovative and inviting, Landmark harnesses the potential of downtown Ann Arbor’s most important east-west thoroughfare by proposing a mixed-use retail residential complex. In keeping with the city’s goals of bringing new residential units to the downtown area while maintaining an appropriate mix of national and local retailers, Landmark on Liberty will be the anchor of revitalization along East Liberty Street.

Building the urban corridor between Main Street and State Street, this development brings vitality to Liberty Street with attractive design, both inside and out. The retail composition of Landmark invites University of Michigan students as well as permanent residents of the community with known clothiers, new food and drink options, and local entrepreneurs both new and established. Residential units provide generous loft-style layouts close to all Ann Arbor’s cultural amenities. Pedestrians along Liberty Street will find comfort in the wide sidewalks and outdoor furniture, as a convenient oasis to relax while trekking between Main and State Streets.

Development HighlightsRetail Units (Floors 1 and 2)• Five first floor retail units, with a combined

total of 11,996 sq. ft.• Three or more second floor retail units, with

a combined total of 11,436 sq. ft.• Superb visibility and attractive street-level

design.• Residential Condominiums (Floors 3

through 8)• Forty-eight premium for-sale

condominiums, including 5 units for households at or below 80% of Ann Arbor’s Area Median Income.

• Open loft floor plans with generous square footage- from 900 to 2,000 sq. ft.

• Pricing from $101,500-$780,000.• Underground parking for 35 condominium

units, at additional cost.

Financial HighlightsTotal Project Cost: $22.5 millionNet Present Value: $1.00 millionOverall IRR: 16.0%Retail Lease, NNN Average: $30.12/sq. ft.Residential Sales, Average: $362.92/sq. ft.

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LandmarkLandmark On Liberty

Site Analysis


The Landmark on Liberty is the focal point of redevelopment along East Liberty Street. This project is situated between Division and Thompson streets and directly across the street from McKinley Towne Center, the former headquarters of TCF Bank. This project has the potential to bridge Ann Arbor’s two major destinations- Main Street and State Street.

Site History

Dale Bell’s career in real estate began 12 years ago when he purchased his first apartment building. Intending the purchase to be more of a hobby upon his retirement from the University than an investment, Mr. Bell soon realized the income potential of real estate in this community. Mr. Bell has teamed with his son, David, to purchase more than 20 buildings in the Ann Arbor community. The majority of the holdings are student housing; the properties on Liberty constitute his only retail holdings. Common Sense Consulting, LLC welcomed the opportunity to provide the Bell Family with a model for developing a medium-scale, mixed-use development.

Aerial view, Liberty Street bounded by South Division & Thompson Streets

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Current Site


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The original two parcels fronting Liberty Street, 303 S Division and 410 E Liberty, have been in Beverly Bell’s family for many years. The house on the corner of Thompson and Liberty was owned by Mrs. Bell and her brother, who had inherited the property from their parents. Last year, Dale and David Bell purchased the land outright at a court ordered property auction these parcels and outbid his brother–in-law’s at for $1.6 million.[1] Additionally, the parcel at 306 Thompson is also currently owned by Mrs. Bell and her brother. Again, Mr. Bell has negotiated to purchase the property, though he has indicated that he may have to force another auction. At this time, Mr. Bell is further investigating the opportunity to purchase and consolidate more land in the area in an effort to build as large a footprint at the site as possible. This has also included discussion of the property at 307 S Division with Dale Newman, who owns this property.

In total, combining these four parcels offers about 16,427 sq.ft. of land area.

PotentialThe only way to adequately describe this location is by noting its potential and its importance to the future of the Liberty Street corridor. There is little doubt that as downtown Ann Arbor continues the path of revitalization and new growth, this parcel is a crucial piece of the puzzle. Liberty Street is already the main thoroughfare for pedestrians between State Street and Main Street and serves in such a capacity for the Annual Art Fair. Our goal is to draw pedestrians to the area year-rond and provide them with retail and dining alternatives to what they may find elsewhere.

1] http://www.mlive.com/news/aanews/index.ssf?/base/news-11/1105717338150930.xml

In February 2005, the University of Michigan announced that it will soon be building an 800 bed dormitory at the corner of State and Washington, a mere three blocks from this location.[2] This influx of young people will add a dynamic to the area requiring an appropriate shift in retail and dining opportunities.

McKinley’s announcement of its redevelopment of the TCF Bank is also extremely exciting.[3] Besides being one of the most sought after office addresses, McKinley Towne Center, will become a retail and dining center by removing the large bank lobby and replacing it with a mix of retail opportunities.

View toward the McKinley Town Centre Development

[2]http://www.michigandaily.com/vnews/display.v/ART/2005/02/10/420b472d4d506[3] http://www.mlive.com/news/aanews/index.ssf?/base/news-


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Community and Social Context

The Ann Arbor Story. . .[4] Recently, a plan presented to the Ann Arbor City Council by the Downtown Development Authority (DDA) called for three publicly owned sites used for parking to be developed as high density, mixed-use residential buildings. By utilizing these prime downtown areas more efficiently, more residential units could be added to further the DDA’s agenda to increase downtown residency.

Another plan, backed by Ann Arbor Friends of the Greenway, was presented to City Council just two weeks after the DDA proposal. This plan called for downtown areas, including some of the same areas in the DDA plan, to be preserved as open space to build a green linkage corridor. Many greenway proposal supporters are environmentalists, or concerned residents of the neighborhood abutting downtown.

Decidedly, the City Council voted against the greenway proposal; but potential remains for the three-site plan.

[4] Information for this section was compiled from the following sources.

Rott, Leslie. “Council rejects greenway proposal.” The Michigan Daily. 23 March 2005.

Gantert, Tom. “DDA gets a mixed response.” The Ann Arbor News. 8 March 2005. Accessed 13 April 2005. http://www.mlive.com/news/aanews/index.ssf?/base/news-12/111029647968560.xml .

This vignette represents a typical scenario in the Ann Arbor community, where debates rage between not-in-my-back-yard neighbors and developers who must be prepared to visit the planning commission several timesbefore obtaining approvals for projects. More often than not, density is cited as the primary concern. There seems to be some sort of correlation between open space disappearing, increased traffic congestion, constrained tax bases, et cetera. However, to address these concerns in light of the justification the NIMBYs often present- e.g. environmentalism, quality of life, and decreased property values, for example- the economics of density must be presented as a means to sustaining the unique character of a community such as Ann Arbor.

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“This central question is whether our city, and especially our downtown, are going to be allowed to develop with the mixed uses -

housing, shops, a greenway, maybe even a market with some groceries - that would

strengthen the city and relieve some development pressure from the rural

townships, or whether Ann Arbor will instead push this development away, to the

townships and strip malls and McMansions, to the magical Land of Not In My Back Yard.”

--Phil D’Anieri, “Other Voices” EditorialAnn Arbor News, March 27, 2005


LandmarkLandmark On LibertyEconomics of Density: The Efficiency Argument

Increasing density, in and of itself, should not necessarily be a goal for every city or urbanized region. However, adding density generally promotes land to its highest and best use, particularly in the downtown or urban core, results in a greater efficiency of land. Consider the following, taken from Higher-Density Housing: Myth and Fact.[5]

Higher-density housing:– Places less demand on schools and public services,

and reduces infrastructure extension needed to support development.

– Encourages economic growth and development.– Does not adversely affect property values; in many

cases, it increases value.– Generates less traffic and encourages alternative

transit options like walking and public transportation.

In sum, density is a tool that should be utilized by developers and encouraged through the political process. In doing so, communities like Ann Arbor reap economic gains that can be redistributed among its citizens.

[5] Haughey, Richard M. Higher-Density Development: Myth and Fact. Washington, D.C.: ULI–Urban Land Institute, 2005.

Economics of Density: The Equity ArgumentBesides encouraging the efficient use of land and economic resources, density promotes equity of resources and people. Because resources are utilized more efficiently, more people can and want to live in the city. For instance, higher-density development:[6]

– Attracts people of all income groups.– Expands the supply of affordable housing.– Allows workers to live closer to their place

of employment.– Encourages mixed-income housing, mixed-

uses, and diversity.– Relieves pressure on agricultural outskirts,

keeping sprawl in check.Keeping this in mind, encouraging density will enhance the urban character that makes “people-places”. Landmark on Liberty increases site density and utilizes its location to provide both economic and social benefits to the downtown area.

SummaryAnn Arbor’s Downtown Development Authority seeks to increase downtown density, add residential housing units, and create a 24-hour environment. Using progressive development techniques, like those demonstrated in the mixed-use, mixed-income Landmark on Liberty, density is used to create urban vitality and economic sustainability.

[6] Ibid.

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LandmarkLandmark On LibertyPolitical Context

Stakeholder AnalysisThe chart to the right describes the priorities and concerns of the development’s key stakeholders. Landmark on Liberty addresses key stakeholders’ concerns in the following ways:

• A mixed-income residential development addresses multiple stakeholders’ desire to build additional residential units downtown while providing both market-rate and affordable housing options.

• Landmark on Liberty will host a combination of national and local retailers to complement, not compete with existing retail in the area. Retailers were carefully chosen to provide a lively street-scene. New retailers expand the retail options available downtown and draw more customers to the area.

• Underground parking on-site and nearby city garages provide ample parking for residents and customers. Keep interest in property

• Existing tenants will have the option to terminate their lease, move into space in the new development or relocate to one of the Bell’s other properties.

Political Issue: Zoning Classification ChangeCurrently, the four properties known as Landmark on Liberty are classified as C2A/R, Commercial/Residential District under the City of Ann Arbor Zoning Ordinance. Though this category allows “high-density residential and complementary commercial development within the

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Stakeholder Group


LandownersKeep interest in propertyReturn from investment

State Street Area Association

Diversification of retailersCreate interest on streetNice architectureParking

Downtown Neighborhood


Want a critical mass of residents Want a large amount of market-rate housing to keep downtown property values high

Downtown Development


Want a development that consists of a mix of retail, office space, and residential unitsWant permanent underground parking

Current TenantsDisplacement: relocation or space in new developmentIncreased rent

Area TenantsIncreased competitionParking

City of Ann ArborWon’t get PUD zoning change w/o concessions for items like affordable housing and open space


LandmarkLandmark On Libertycentral business district,”[7] the maximum floor-to-area ratio (FAR) is 600%. Because Landmark on Liberty will exceed the allowed FAR by about 50%, a zoning reclassification to Planned Unit Development (PUD) is necessary. Beyond FAR requirements, Landmark on Liberty conforms to the existing zoning district setback limits and use categories.

To succeed in obtaining PUD classification, the City of Ann Arbor requires Common Sense, LLC to describe the “objectives, purposes, and beneficial effect for the city proposed to be achieved by the PUD zoning district.”[8] Aside from the other political and social issues addressed later in this proposal, Landmark on Liberty meets the minimum requirements of the PUD zoning category in the following manner.

• Affordable housing requirement: On-site placement of six condominium units for purchase to households with incomes at or below 80% of the City of Ann Arbor’s Area Median Income (AMI).

• Parking requirement: Underground parking is included for residential units to purchase. Increasing density produces on-site parking challenges that fully considered in the “Parking” subheading in this section.

• Landscaping and screening requirement: Landscape improvements at the ground level are provided for aesthetic enhancement of the central business district. Sidewalks are kept at their current proportions. Site improvements will facilitate pedestrian-friendly interaction with increased ground-level transparency and additional street furniture. Improvements made to enhance the attractiveness of Liberty Plaza Park.

These requirements, however, are only the minimum needed to be addressed to obtain PUD approval. Common Sense, LLC attends to common developmental concerns in greater detail throughout this proposal.

[7] Chapter 55, §5:10.20, City of Ann Arbor Code Ordinances. Accessed 10 April 2005. http://library4.municode.com/gateway.dll/MI/michigan/9494?f=templates&fn=default.htm&npusername=11782&nppassword=MCC&npac_credentialspresent=true&vid=default.

[8] “An Ordinance to Amend Chapter 55 of Title V of the Code of the City of Ann Arbor.” Chapter 55, §5:80. City of Ann Arbor Code Ordinances. Accessed 10 April 2005. http://www.ci.ann-arbor.mi.us/CommunityServices/Clerks/ordinances/2004/23-04.pdf .

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Landmark on Liberty


LandmarkLandmark On LibertyPolitical Issue: Downtown Parking

When it comes to parking in downtown Ann Arbor, one thing is for certain: there is never enough. Adding density to a downtown site like Liberty and Division Streets requires tradeoffs made for other uses. Typically, the availability of parking is compromised with additional density. But, as the Urban Land Institute points out, “Higher-density development . . . makes walking and public transit more feasible and creates opportunities for shared parking.”[9] The narrow site dimensions of Landmark on Liberty challenged Common Sense, LLC to come up with a parking layout and alternatives that would meet the needs of its new downtown residents and accepted by the Downtown Development Authority and the Planning Commission for appropriate political approvals. Landmark on Liberty successfully addresses parking for residents and retailers in the following ways.

Underground Parking- Encouraged by the DDA, underground parking maximizes development density, encouraging higher and better land-uses. Landmark on Liberty offers 35 parking spaces for sale with priority to purchasers of condominium units. Realizing that building density encourages but does necessarily reduce auto-dependence in downtown residential units, the parking layout includes ten 30 ft. long spaces for two car households.

Alternative Options for Residents- Although there is not parking for every residential unit, other off-site parking options exist. The DDA, in their mandate to encourage downtown residential housing, recommends alternatives in addition to underground parking. Such measures include “developing outskirt parking storage locations for residents, developing parking contracts for residential developments, and developing priorities for downtown residential parking.”[10] Additional recommendations encourage public transportation use and bicycle-friendly downtown streetscape.

Options for Retailers & Their Employees- A variety of alternative parking choices exist to offer retailers and employees easy access to downtown locations. The Ann Arbor Chamber of Commerce’s “getDowntown” program options, like the “go!Pass”, Ann Arbor Transit Authority Park & Ride lots, and car sharing maximize parking options for downtown workers.[11] Furthermore, owners of underground parking spaces may offer their spaces for rent to Landmark on Liberty’s retail employees.

[9] Haughey, Richard M. Higher-Density Development: Myth and Fact. Washington, D.C.: ULI–Urban Land Institute, 2005.

[10] “Housing: Downtown Housing and Transportation.” City of Ann Arbor Downtown Development Authority Website. Accessed 9 April 2005. http://www.ci.ann-arbor.mi.us/DDA/goalshousing.html .

[11] “get Downtown: Program Options.” Get Downtown: Commuting Options in Ann Arbor Website. Accessed 9 April 2005.

http://www.getdowntown.org/getdowntown.html Common Sense Consulting, LLC

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Political Issue: Liberty Plaza ParkDowntown Ann Arbor is known for its dedication to public parks and green space. Liberty Plaza, on the southwest corner of Division and Liberty Streets, does not fit the image of a “green space,” however. Although this “urban plaza” is supposed to be a people-place for lunching or a pedestrian rest stop, it is usually empty.[12]

As part of the Landmark development, Common Sense Consulting proposes that some plaza beautification be done. One suggestion is to add a playground to the plaza, to make it desirable for both children and adults in the area.[13] To make this area more people-friendly, we recommend that the park be reconfigured to include a small playground and tables and chairs for adults who are shopping and eating in the area. The playground may also work as an extension of the nearby public library and fill a void left by the departing YMCA. The city must also remove a large amount of the concrete and build more inviting green space beyond the existing drinking fountain and portable restroom.

[12] City of Ann Arbor Parks website. Accessed 12 April 2005. http://www.ci.ann-arbor.mi.us/CommunityServices/Parks/Parkdescriptions/liberty.html

[13] Sucher, David. 1995. City Comforts: How to Build an Urban Village. Seattle, WA: City Comforts Press.

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IntroductionAnn Arbor’s population growth has been steady at around 1.8% per year, which is slightly above average for U.S. cities.[14] The city is directly affected by the cyclical economics of the Detroit area, even though it is buffered by the University of Michigan. It is also home to many regional business operations that select this location for its quality of life, abundance of open space and because it is known as a “cool city”[15]. Ann Arbor’s high median income, $78,050,[16] is evidence of a strong local economy. The following sections present current market data for the office, residential and retail sectors.

Residential Market IndicatorsThe Texas Housing Affordability Index (THAI) is a measure used by economists of the Real Estate Center at Texas A&M University that estimates affordability of housing in a particular location (See Table 1). If the Index values are less than 1.00, it is a signal that homes are less affordable and that home purchase is difficult for most households. Conversely, values more than 1.00 indicate relatively affordable housing.[17] If we apply this index to Ann Arbor, the Housing Affordability Index (HAI) is 1.57 (See Table 1). Indicating that from a local macroeconomic view, the market is expensive.

[14] National Review of Real Estate Markets On-Line, The Local Market Monitor, 70 Glen Road, Wellesley MA 02481, December 2003

[15] Michigan Cool Cities Website. “Case Studies.” Accessed 4/11/05. http://www.coolcities.com/whatyoucando/caseStudies/.

[16] Median Family Income, Ann Arbor PMSA. U.S. Department of Housing and Urban Development: State of Michigan Fiscal Year 2005 Income Limits. Accessed 10 February 2005. http://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/income/2005/michigan.pdf

[17] Texas Affordability Index Annual Report, 1989-2003, Jack C. Harris, Research Economist, Real Estate Center, Texas A&M University, January 2005

Why is Ann Arbor so expensive? This can be attributed to demand versus supply. In 2003, the total units needed in 2003 were 5,924, while the annual construction level was 5,323 units- a 601 unit deficit.[18] This is consistent with the Ann Arbor Board of Realtors MLS report indicating that in 2004 the average market days for residential and condominium for-sale units was 73 and 68 days, respectively.[19] Typically, an average of 70 market days is considered a very good market for sellers. If we focus on zip code 48104, the zip code of Landmark at Liberty, and apply the same HAI methodology, the HAI is 1.20. This indicates that for our target market, the housing prices are fairly valued when compared to the US HAI (See table 1 above). Additionally, by segmenting the 48104 zip code into its demographic components (See Table 2), the housing price point for our target market (non-student residents) is about $330,000 for an average sized residence. With this in mind, properties valued in this range represent the real estate opportunity for Landmark on Liberty.

[18] National Review of Real Estate Markets On-Line, The Local Market Monitor, 70 Glen Road, Wellesley MA 02481, December 2003

[19] Ann Arbor Area Board of Realtors MLS Sales Report

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Table 1. Ann Arbor Housing Affordability Index

Median Household Income (1)

Qualifying Ratio(2)

Median Home

Price (3)Mortgage Rate (4)

Median Mortgage Payment

Housing Affordability

Index (HAI) (5)

United States

HAIAnn Arbor $45,500 28% $140,104 5.81% $8,140.04 1.57 1.13Zip 48104 $45,664 28% $183,288 5.81% $10,649.03 1.20 1.13

(1) Based on census data compiled by MSN House & Home Site

(3) Based on data compiled by MSN House & Home Site

(2) Used by loan underwriters to determine the largest loan obtainable given income. Most convential mortgages have a ratio of 28%. (Texas Real Estate Center)

(4) The average interest rate is based on all mortgage loans closed during the last five days of each month. (Texas Real Estate Research Center) (To be revised)

(5) HAI = (Median Household Income x Qualifying Ratio)/Monthly Mortgage Payment (Texas Real Estate Research Center)


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By segmenting the market according to demographics (See Table 2), it is clear which segments can afford to buy or rent. The percentage of homes rented in zip 48104 is 35.53%.[20] This strongly correlates to the number of College Town Singles (39.97% of total), who have been priced out of the market due to their income levels. The rental vacancy rate is currently around 5.06%, but we expect this value to increase due to the new dormitories planned by the University of Michigan.[21] Since the rental market is addressed by the University’s presence and strong supply exists, the Landmark on Liberty will focus on for sale residences only.

Retail Market IndicatorsThe retail rental market in the metropolitan Detroit area is currently on the recovery cycle and approaching a growth cycle.[22] The total retail vacancy rate is approximately 6.41%, which is stronger than the U.S. average of 7.27%.[23] The forecasted average net absorption for retail space during the 2005-2007 in the suburban Detroit area is 195,000 sq. ft. compared with 126,000 sq. ft. under construction

[20] MSN House and Home website.[21] Ibid.[22] Viewpoint 2005, Integra Realty Resources, Inc. (IRR)[23] Ibid.

The Landmark on Liberty is located at Liberty and Division, two blocks away from the State Street Business District and four blocks from Main Street. State Street is still the most desirable retail area for those who want to draw both students and permanent residents of Ann Arbor.[24] According to Jeffrey Harshe, State Street has begun to transform into a South University clone with too much food and not enough traditional retail. With the impact of undergraduate students at Corner House Lofts and additional dormitories at the Frieze Building, Ann Arbor’s permanent residents may turn away from the State Street area if retail is not diversified. Additionally, Borders and two-way streets have reinvigorated Liberty and State with rates on State being $35/sq. ft. gross and up, depending on the size, location, etc.[25] Rates on Liberty and "one block off" locations vary, but are typically in the $25 - $30 range in most cases.[26] These rates over that last few years have escalated due to heightened interest from restaurants, which make it difficult for other types of retail outlets to survive.  The sales per square foot may not be enough to justify their overhead, making it difficult to court major retailers that prefer mall locations with lower rental rates. [27]

The McKinley acquisition of the TCF Bank building will also have a large impact on the retail market segment. McKinley plans to convert underutilized space, such as the lobby and the outdoor corridor along Liberty Street, into rentable areas for retail and restaurants.[28] This conversion will greatly

[24] Jeffrey Harshe, CCIM, Swisher Commercial[25] Ibid.[26] Ibid[27] Susan Pollay, Ann Arbor DDA[28] TCF Building a Trophy Deal for McKinley, Paula Gardner, Business

Review, MLive.com

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Table 2. Zip 48104 Demographic Market Segmentation

Demographic Description (1)

% of Neighborhood Households (1)

Age Group (1)

Average Household Income (2)

United States


Median Home Price Point base

on US HAI (3)

Median Home Price Point

based on AA Premium (4)

College Town Singles 39.97% Under 24 25,000.00$ 1.13 106,621.17$ 113,288.76$ Upscale Executive Families 21.60% 35-64 73,534.32$ 1.13 313,612.64$ 333,224.50$ Young Upscale White-Collar Families 14.69% 25-44 73,534.32$ 1.13 313,612.64$ 333,224.50$ Mid-Level White-Collar Executives 12.22% 55+ 73,534.32$ 1.13 313,612.64$ 333,224.50$

(1) Based on census data compiled by MSN House & Home Site(2) Estimated based on US Census data and MSN House & Home Site and reversed engineered (to be confirmed)(3) Utilized HAI formula and reversed engineered to obtain adequate price point(4) Calculated Premium by dividing by US HAI (1.13) and multiplying by 48104 HAI (1.20)


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LandmarkLandmark On Libertyimpact the area as it transitions between the Main Street and State Street business districts. The Landmark on Liberty takes full advantage of such retail opportunity. Even though the McKinley property will bring several retail and restaurant spaces online before Landmark, it should help energize the Liberty Street area. It is expected that McKinley will anchor strong retailers who would attract more locals instead of students, therefore complementing Main and State street areas rather than turning into another South University clone. With a 6.41% retail vacancy rate in the area and with same store sales increasing 3.86% within the DDA[29], there is plenty of retail absorption for McKinley and Landmark. Additionally, even though the DDA retail market rates are higher than the mall, the two projects would create marketing synergies increasing the foot traffic and retail desirability for the area. The McKinley and Landmark projects should complement each other instead of compete, and convert this area into a linkage between Main Street and State Street.

Recommended Development CompositionCommercial: No office space, mix of national and local

retailers.Residential: High-end condominiums with affordable housing


Rationales: Commercial• Office space market is highly speculative at the state,

local, and neighborhood level. • Oversupply of office space would decrease rent price and

increase vacancy rate.• Unique shopping experiences can make Landmark on

Liberty a pedestrians’ destination between State and Main• National retailer would become an anchor by fulfilling

unmet demands in down town shopping[29] Ann Arbor DDA Downtown Benchmark Data, December 2004, http://www.ci.ann-


• At State and Liberty area, both national and local retailers successfully coexist

Rationales: Residential• Strong demand in housing exists in Ann Arbor• Current comparables in the high-end condominium

market proves the strong demand in this market. • DDA requires affordable housing for PUD

classification• Mixed income high density housing delivers

diversity in neighborhood community• There is no visible sign of oversupply in down town

housing markets

Retail Marketing StrategyThe retail portion of Landmark on Liberty will create a destination shopping district. In order to draw shoppers up from Main Street and down from State street, the Landmark must satisfy an unfulfilled need, create interest and stimulate return shopping, compliment the existing nearby shopping, and draw in those passing by. The location is central to the walking district of downtown and is surrounded by inexpensive parking decks and metered parking which will allow easy and convenient access.

The Landmark will have one large two-story anchor store at the end of the block on the corner of Liberty and Division. This anchor store will pull the shopper west down Liberty and allow them to pass the other retailers along the way. The retailers the shopper will pass will be more impulse oriented and have attractive window displays which will draw them in and create a lively streetscape.

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LandmarkLandmark On LibertyAnthropologie

The Landmark is a perfect location for Anthropologie to locate a new store because it fits in perfectly with their marketing and growth strategies. Anthropologie is owned by Urban Outfitters which has a very successful store 2 blocks away on State Street. The company often prefers to locate these two stores near each other due to their complimenting merchandise and overlapping client base. Their past and current success of Urban Outfitters in this market will make opening an Anthropologie in this location a natural progression. Ann Arbor provides them with a client base perfectly in line with their target market: 18-35 year old educated and affluent women. Furthermore, Anthropologie is currently expanding into the mid-west and prefers easily accessible and walkable downtown locations – a perfect fit for Ann Arbor and a perfect fit for Landmark on Liberty!

Tom Heywood, Executive Director of the State Street Area Association agrees and believes that “Anthropologie is a home run. Urban Outfitter is doing very well and I believe there is a market for an Anthropologie here.”[30] He believes the store will fit in well with the businesses in the area and will benefit everyone by bringing more customers downtown by creating interest on the street. Tom believes this idea will easily get approved and was very excited about the possibility of an Anthropologie opening in the Landmark location.

Card/Stationary ShopThe middle retail space would be a perfect place for impulse purchases such as a locally owned card and stationary shop. These stores typically have attractive window displays and cater to the same demographic shoppers as Anthropologie. There are currently no such card shops in the area and would serve to fill this need.

[30] Interview with Tom Heywood at State Street Area Association

Brooks BrothersAnother candidate for the anchor space is Brooks Brothers. The footprint will lend itself perfectly to the store size Brooks Brothers desires and could be a strong force to draw shoppers to this section of Liberty Street. Their customers would include not only the businessmen located in and around Ann Arbor, but also the thousands of undergraduate and graduate students needing interview suits. Students interviewed on campus stated that they “travel all the way to Somerset Mall just to buy an interview suit. I wish there was a Brooks Brothers nearby.”[31] Brooks Brothers was intrigued by the Ann Arbor location, but they did not see Ann Arbor as a primary market. While the Landmark location fits in with their preference for downtown, walkable locations, the store grows conservatively and probably wouldn’t consider a location in Ann Arbor for a few years.[32]

Jamba JuiceAnother option for this middle retail space is Jamba Juice. Jamba Juice is the largest smoothie enterprise in the United States. Smoothie chains began in the western and southern states and are rapidly spreading across the country. Smoothies appeal to the young, urban and upwardly mobile and are marketed to convenience-driven, health-conscious or

[31] Interview with Jake Braly, current MBA student[32] Interview with Roger Kehm, Retail Brand Alliance (in charge of real

estate locations for Brooks Brothers).

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LandmarkLandmark On Libertybetter-for-you motivated consumers. “The appeal of smoothies to the young and hip led to the rapid spread of smoothie and juice bars on college campuses.”[33] Jamba Juice has recently entered into the mid-western market but has not yet entered Michigan. Their current marketing strategy is to focus on college campuses in the Midwest and Ann Arbor is the perfect location. In addition to the college market, smoothies also cater to the fitness and health conscious consumers who are always looking for convenient and healthy drink and food alternatives[34]. Ann Arbor provides both of these demographics and would be the ideal location for a Jamba Juice. “We’ve always worked well where there is high income and high education demographics.”[35] A Jamba Juice located in the center of the Landmark will capture customers who are passing by and will also draw customers from all parts of Ann Arbor.

Versailles SpaThe remaining second floor retail may house the displaced Versailles spa. This space naturally lends itself to this type of service since it will not create interest on the street and spa services are rarely subject to impulse purchases. Spa services are usually booked in advance and are peaceful and serene environments located away from busy pedestrian traffic.

[33] Mintel's Smoothies-U.S., consumer intelligence, February 2004[34] http://www.jambajuice.com/where/index.html[35] Randy Carucci, Development


Gourmet-to-Go/Specialty Food ShopThe other corner retail space on Liberty will be reserved for a gourmet-to-go and specialty food shop. The Ann Arbor area is lacking such an establishment and they are becoming increasingly popular as people lead busier lives but still desire a well-prepared and home cooked meal. Dale Bell’s son, David, is a chef and could be a potential owner and operator of this shop. Customers will include the local condominium tenants, office workers from the new TCF complex across the street, students and shoppers. Customers will be able to sit down for lunch and dinner in a café-like setting or pick up an entire meal for their family. The specialty food store section encourages impulse buying and will compliment the food menu items by offering items such as gourmet olive oils, European sodas and snacks, and imported chocolates. Their primary customer base, affluent and educated women will already be shopping in the area at the neighboring stores and will inevitably stop in for a bite to eat or a meal to go.

Residential Pricing Strategy: Residential Market Comparables

The Landmark at Liberty has a strong likelihood of being successful in the Ann Arbor market if it is priced correctly. As it was mentioned in the previous residential section, the median price point for an average residence in the Ann Arbor market is $330,000. This price point mixes all types of construction, i.e. detached residential, condo loft, etc. Additionally, since the Landmark will only target those customers that would want to experience the downtown life, it is more appropriate to obtain a price point based on the comparables available in the market which are similar to the Landmark. The two comparables that better reflect the Landmark are Loft 322, which will be located one block away, and Liberty Lofts.

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LandmarkLandmark On Liberty

Table M1 – Loft 322 Comparables

The comparables illustrated in the two tables above are adjusted after removing the balcony from the square footage. The Landmark at Liberty will be adequately priced starting at $340/sq. ft. in the 3rd floor and increasing $10/sq. ft. in each additional floor. This represents a premium of 5% to 7% over Loft 322 due to superior quality.

Table M2-Liberty LoftsComparables

Architectural Highlights

Designing a LandmarkInfill development in the urban core provides opportunity to change how we feel about our urban village. How we relate with the structure and its design- in physical and social interaction- determines the architectural value given to the building. Physical design is judged, albeit subjectively, on the visual aesthetics and

functionalism of the building based on its use. Alternatively, emotional indicators are the basis of opinion for social design. The activities that take place upon arrival, entry, and exit of the building expose a social psychology of acceptance or rejection. Do we feel welcome enough to go in, even if there is no purpose but to look around? Are we comfortable enough to strike up a conversation outside? Taken together, the physical and social functions of architectural design, at their best, enhance place-making. Designing Landmark on Liberty is a call to promote place-making by enhancing Liberty Street as the primary linkage between Main and State Streets.

Building Downtown Character Through DesignThe City of Ann Arbor and the Downtown Development Authority understand that place-making is essential to the long-term viability of the central business district. Through a participatory process facilitated by the City of Ann Arbor Planning Department, these guiding principles were established to protect character:[36]

– Density downtown contributes to economic vitality and the efficient utilization of land.

– Pedestrian activity is a critical element to downtown health.

– Existing downtown character needs to be protected and enhanced.

A variety of architectural and design styles can be employed to meet these objectives. David Sucher, author of City Comforts: How to Build an Urban Village, proposes three key design strategies to facilitate interaction with a building to the fullest extent.[37] They are incorporated into the design of Landmark on Liberty as follows.

[36] “Downtown Building Height and Design.” Presentation Draft for ORC Meeting, updated 25 June 2002. . City of Ann Arbor, Downtown Development Authority. Accessed 12 April 2005. http://www.ci.ann-arbor.mi.us/CommunityServices/Planning/Planning/Downtown/Downtown_PDF/downtown_design_June25.pdf .

[37] Sucher, David. 1995. City Comforts: How to Build an Urban Village. Seattle, WA: City Comforts Press. Page 12-13.

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FloorPrice/sq. ft.

February 13, 20052 $314.633 $322.994 $325.485 $332.74

Penthouse $276.89

FloorPrice/sq. ft.

March 4, 2005Price/sq. ft. April 8, 2005

2 $319.84 $319.723 $325.15 $323.534 $329.28 $351.345 $338.27 $397.64


LandmarkLandmark On Liberty

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All Drawings By Luis Martinez,

Lane Allen Architects


LandmarkLandmark On Liberty• Build to the sidewalk. The design of Landmark

on Liberty maximizes setbacks, encouraging pedestrian interaction with ground-level retail units. Pedestrian seating, 10’ wide sidewalks, and softened corner detailing at Liberty and Division extend the social space from the interior of Landmark to the exterior. The primary entrance for residential units on Liberty Street encourages further ground-level activity. Canopies extend outward from first floor to unite the structure and the sidewalk.

• Make the street front permeable. Transparency is maximized to the fullest extent on the first and second floors facing Division, Liberty, and Thompson Streets. Although Landmark will not have significant setbacks until the 7th floor, architectural details are employed to segregate floor levels and diminish the sense of heaviness associated with greater site density. All residential units on the 3rd through 6th floors include balconies, extending the relationship from the street to upper floors.

• Place parking behind, under, above, or alongside the building. Parking is never a “highest and best use” of land. The narrow site layout of Landmark is a challenge for underground parking. However, on-site parking is designed to accommodate auto-dependent households without compromising valuable ground level space.

Using these design techniques, Landmark on Liberty promises to be an attractive example of architecture that facilitates functional and aesthetic transitioning between Ann Arbor’s primary people places.

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LandmarkLandmark On Liberty

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LandmarkLandmark On Liberty

Financial AnalysisIn this section, Common Sense Consulting, LLC provides a set of pro forma financial statements consisting of two segments: residential sales and commercial leasing. Residential sales include both market rate housing and affordable housing units. The pro forma is supported by construction cost estimates and revenue forecasts based on a detailed marketing study. The analysis focuses on the evaluation of IRR and NPV and conducts sensitivity analysis to identify the key drivers of the development.

Key AssumptionsSite Acquisition

The owner acquired the original properties (10,916 sq. ft.) in Jan 2005 for $1.6 MM[38] and has an option to buy additional two neighboring properties (5,511 sq. ft.). The current shape of the property does not allow for constructing a reasonable underground parking structure. Additionally, the set-backs and common-areas required would have a negative impact without the additional properties. Thus, Common Sense Consulting, LLC concluded that the project needs to acquire additional properties estimated at a cost of $1.2 million[39].

[38] Assuming that this amount is paid during the first quarter of 2004 and cost of capital is 10%, the acquisition costs of land as of beginning of 2006 will be $1.76MM ($1.6MM x 1.1)

[39] Interview with Mr. Dale Bell on February10, 2005. The recent acquisition of TCF building would increase the acquisition cost.

TimelineThe original property was acquired in January 2005. Common Sense, LLC assumed the project to start in the first quarter of 2006 mainly to allow the current owner to have enough time to plan and prepare for the development. The following are the key assumptions for the timeline (See Exhibit F1 for complete timeline):

– Construction: 12 months– Residential Sales Period: 12 months for pre-

sales + 12 months to sell all properties– Commercial Rental Operation: 12 months to

fill tenants and 3 years to stabilize operation.

Floor Usage PlanThe current zoning code allows for a FAR of 600%, which will not suffice to recover the high land acquisition costs ($173/sq. ft). As previously discussed, Commonsense, LLC believes that an 8-story building is suitable to the site. The following table shows the summary of floor usage:

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Floor Use Total Area (ft2) Common Area (ft2) Effective Area (ft2) Effectiveness RatioFirst Retail 13,140 2,628 11,996 91.3%Second Retail 13,140 1,971 11,436 87.0%Third Residential 13,140 2,114 11,026 83.9%

Market Rate Housing (8 units) 10,995 1,769 9,226 83.9%Affordable Housing (2 units) 2,145 345 1,800 83.9%

Fourth Residential 13,140 2,114 11,026 83.9%Market Rate Housing (9 units) 12,067 1,941 10,126 83.9%Affordable Housing (1 unit) 1,073 173 900 83.9%

Fifth Residential 13,140 2,114 11,026 83.9%Market Rate Housing (9 units) 12,067 1,941 10,126 83.9%Affordable Housing (1 unit) 1,073 173 900 83.9%

Sixth Residential 13,140 2,114 11,026 83.9%Market Rate Housing (9 units) 12,067 1,941 10,126 83.9%Affordable Housing (1 unit) 1,073 173 900 83.9%

Seventh Residential 7,419 619 6,800 91.7%Penthouse (4 units) 7,419 619 6,800 91.7%

Eighth Residential 7,419 619 6,800 91.7%Penthouse (4 units) 7,419 619 6,800 91.7%

Entire Building 93,678 14,293 81,136 86.6%Note: Not including Underground Parking Area (13,140 sq. ft. for 35 units)


LandmarkLandmark On LibertyAs a result of the proposed high-density mixed-use development, the total FAR will be 667.6%. Common Sense, LLC is confident that the project will be allowed to obtain the required FAR under a PUD since the project intends to realize the vision of DDA to provide pedestrian friendly, high-density mixed use development with affordable housing units.

Construction Costs (See Appendix F2)Common Sense, LLC offers high end residential and high end retail therefore causing that the construction costs be higher than average (Table F2). Additionally, the building will include underground parking with estimated construction costs of $35,000 per unit and sold to the residents at cost. The project also expects to receive TIF financing[40] (See appendix F3), which can be used to partially cover the costs for site preparation and landscaping. As a result, the estimated total construction costs will be $22.5 MM.

[40] According to Peter Allen, the current comparable developments, such as Liberty Loft and Kingslay Lane, received TIF financing equivalent to 16-20% of DDA’s portion of property tax increased by the project for next 10 years. Thus Common Sense, LLC limits the maximum TIF received to be 20% of DDA portion of property tax received in the base case scenario.

Table F2- Average Construction Loan

FinancingThe project will finance construction by a construction loan and the retail operation by a permanent loan. A loan to value ration of 70% was assumed with an interest rate of 6.25% and an amortization schedule of 20 years. Additionally, the up-front fees were 1% for the construction loan and the permanent loan. The sources and uses analysis in the following table indicates the maximum commitment required for the equity investors is $6.7 million.

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Total Retail ResidentialTotal Area (ft2) 93,678 26,280 67,398Property Acquisition Cost per ft2 ($32) ($32) ($32)Hard Cost per ft2 ($190) ($148) ($207)Soft Cost per ft2 ($24) ($24) ($24)Tax Increment Financing per ft2 $6 $6 $6Construction Cost per ft2 (w/o TIF) ($246) ($205) ($263)Construction Cost per ft2 (w/ TIF) ($240) ($199) ($257)

Cost per ft2 Summary

Sourse and Use Analysis (Construction Loan) Sourse and Use Analysis (Permanent Loan)Source Source

Equity Investors $6,595,229 Equity Investors $1,567,168Construction Loan $15,388,868 Permanent Loan $3,656,724TIF Financing $558,200 TIF Financing N/A

Total Sources $22,542,297 Total Sources $5,223,892

Use UseTotal Construction ($22,542,297) Retail Construction ($5,223,892)

Total Uses ($22,542,297) Total Uses ($5,223,892)


LandmarkLandmark On LibertyRevenue Plan

Retail Segment (See Appendix F3)The commercial rental operation will start in the first quarter of 2007 and will be filled at the end of 2007. The operation is expected to be stabilized by the end of 2010, which was determined to be the terminal year with an exit Cap Rate of 8.5%. A vacancy rate of 30% for 2007, 10% for 2008 and 7% after 2009 was assumed.

Residential Segment (See Appendix F4)

Market Rate Housing Units: Asking price is determined based on the comparables in the market: Liberty Loft and Loft322. Due to the strong demand of the high-end condominium markets in down town Ann Arbor and in order to secure the construction loan, 50% of the properties will be pre-sold while the rest of the units will be sold within one year. Only 35 units will be able purchase the parking spots at the hard construction costs ($35,000/unit).

Affordable Housing Units: 5 units of affordable housing units will be sold at the price determined by City of Ann Arbor.

Evaluation of Project IRR and NPV

Entire ProjectBased on the assumptions in the above, the entire development will be able to obtain a 16% IRR and an overall NPV of $1,000,656 at a 10% discount rate. The cash flow in the below table shows that the residential segment is breakeven on cash on cash basis, indicating that the source of financial return is retail segment. The following sections evaluate the financial return in both segments.

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Summary of Housing Unit PricingW/Parking WO/Parking

Units % Total sqft Total Revenues Price/sqft Price/Unit Total Revenues Price/sqftAffordable 5 10.4% 4,500 $522,000 $116.00 $104,400 $522,000 $116.00Market Rate 43 89.6% 53,204 $20,325,920 $382.04 $472,696 $19,100,920 $359.01Total 48 100.0% 57,704 $20,847,920 $361.29 $434,332 $19,622,920 $340.06


Base Case Scinario Terminal Vacancy Rate

OVERALL CASHFLOW ANALYSIS 2006 2007 2008 2009 2010

Residential ($9,889,952) $10,024,031

Retail ($1,567,168) $99,917 $194,910 $217,778 $4,435,564

Total Cashflow ($11,457,119) $10,123,948 $194,910 $217,778 $4,435,564

Overall NPV @10% $1,000,656Overall IRR 16.0%


LandmarkLandmark On LibertyResidential Segment (See Appendix F5)

Based on the assumptions mentioned earlier, the entire residential segment will obtain a 1.4% IRR mainly due to the costs associated with including affordable housing. If all the affordable housing units were sold at the market rate[41], the residential portion of the project would have been able to obtain a 7.6% IRR[42].

Retail SegmentThe retail segment of the project will be able to obtain an IRR of 35.9% and an NPV of $1,707,199 at a 10% discount rate. Since all the underground parking costs are allocated to residential segment and the retail segment enjoys a higher relative rental premium, it was able to achieve a higher IRR and NPV.

Sensitivity AnalysisTable F6 – Sensitivity Analysis A

Two Variable Sensitivity Analysis Table (Exit cap rate and Terminal Vacancy Rate)

In addition to the above sensitivity analysis, the impact of long-term effects due to appreciation on the project was evaluated. The residential portion of the project will not provide appreciation benefits because all units are expected to be sold by the end of 2007. However, because the developer will hold to the commercial rental units for five years, it is possible to capture the benefits from appreciation of the property improving the entire project economics. If the appreciation occurs in year 5 (2010), it is fair to assume that the terminal vacancy rate and exit cap rate will decline. The following table illustrates the impact on the total project IRR due to property appreciation effects:

Table F7 – Sensitivity Analysis B

[41] Assumes no TIF Financing is available under this scenario. Note that PUD certification for this scenario would be hard to obtain due to no affordable housing units in this development.

[42] In this scenario, total project IRR is 18.8% and NPV @10% is $1.4

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ASSUMPTIONS Pesimistic Base Optimistic

Construction Cost +5% ($22,542,297) -5%

Interest Rate 7.00% 6.25% 6.00%

Selling Price of Market Rate Housing -10% $362.92 +10%

NNN Commercial Rental Rate -10% $30.12 +10%

Terminal Vacancy Rate 9% 7% 5%

Exit Cap Rate for Commercial Rental 9.50% 8.50% 7.50%

Overall NPV @10% ($2,625,269) $1,000,656 $4,692,463

Overall IRR -4.7% 16.0% 41.2%

IRR Sensitivity Analysis

Terminal Vacancy Rate

16.0% 5.00% 6.00% 7.00% 8.00% 9.00%

Exit 7.50% 19.3% 19.0% 18.8% 18.5% 18.3%

Cap 8.00% 17.9% 17.6% 17.4% 17.1% 16.8%

Rate 8.50% 16.5% 16.3% 16.0% 15.8% 15.5%

9.00% 15.3% 15.0% 14.8% 14.5% 14.3%

9.50% 14.1% 13.9% 13.6% 13.4% 13.1%


LandmarkLandmark On LibertyHow could the project financially be attractive?

Generally average investors require 15-20 %of return on the real estate investment. The current total return of the project achieves a 16% in the base case scenario making attractive to most investors. As a developer, Common Sense, LLC is concerned that the return is closer to the lower end of the acceptable range and therefore will need to resolve this issue since the commitment of capital is high: $6.7 million. To achieve a 20% IRR for the entire project in order to attract equity investors, three alternatives can be considered:

– Option 1 (Reducing construction costs): Total construction costs need to be reduced by 2.9%.

– Option 2 (Increasing price): Market rate housing price needs to be raised by 4.3%.

– Option 3 (Increasing TIF financing): DDA would allocate 44.1% of its incremental property tax.

The most realistic scenario would be the combination of Option 1 and 2. If the project can successfully reduce construction cost by 2 % while increasing selling price by 1.2%, the project will achieve a 20% IRR.

Possibility to sell air rightsAs seen in the Corner House Lofts located at the intersection of Washington and State, there is a possibility to sell air rights to other developers while retaining the right for the first floor retail. The sale of air rights would substantially reduce the financial burden from the current owner and complement his lack of past experience in the development business.


The development may not deliver the maximum financial return to the developers in the short-run due to high land acquisition costs and subsidizing affordable housing units. However, the vision in this development would create long-term rewards to both community and the developer by initiating the “Transition” in downtown Ann Arbor. As the sensitivity analysis indicated, the project could successfully appreciate in value, thus making it financially viable.

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