COMMERCIAL PAD & STRIPMALL CASE STUDYCommercial Academy BonusPre‐Event Webinar Series #5

Chris Orosco“The Orosco Group”

Case Study

Paul Esajian“FortuneBuilders”

THE EIGHT STEPS OF COMMERCIAL DEVELOPMENT

1. Financial Analysis2. Acquisition3. Entitlements4. Design5. Obtain Tenants6. Construction7. Asset Management8. Disposition

STEP 1 – FINANCIAL ANALYSIS

FINANCIAL ANALYSIS

• The Proforma ‐ A “Supercharged” Budget• Rental Income• Construction Costs• Cash Flow• Reporting• Sources & Uses of Funds

• The “Capital Stack”• Cost of Capital• A planning tool, not an accounting tool.

SOURCES & USES OF FUNDS

Sources % LTC Amount incl. FCDeveloper (Sponsor) 0.0% 0$ 0$ A Members Equity 14.6% 2,271,417$ 2,271,417$ B Members Equity 6.4% 1,000,171$ 1,079,845$ Senior Loan 75.0% 11,684,242$ 12,102,267$ Preferred Capital Loan 0.0% 0$ 0$ Subordinate Loan 1 4.0% 623,160$ 788,041$ Total Sources of Funds 100.0% 15,578,989$ 16,241,570$ Uses % LTC Amount incl. FCLand Acquisition Costs 11.5% 1,787,500$ 1,787,500$ Hard Costs 66.6% 10,378,926$ 10,378,926$ Construction Reserve 6.0% 932,283$ 932,283$ Soft Costs 10.9% 1,703,181$ 1,703,181$ Development Fee 5.0% 777,099$ 777,099$ Financing Costs 0.0% 0$ 662,582$ Total Uses of Funds 100.0% 15,578,989$ 16,241,570$

PROJECT ROLLUP FAR Land Area Building Area Units Prorata Land0 0.16 326,700 53,154 8 100.0%

DEVELOPMENT COSTS Input %TDC $/SF Land $/SF Bldg $/Unit $Acquisition Price 11.3% 5.41$ 33.25$ 220,938$ 1,767,500$ Acquisition Escrow Fees 0.1% 0.06$ 0.38$ 2,500$ 20,000$ Off Site Improvements 8.8% 4.22$ 25.92$ 172,241$ 1,377,930$ On Site Improvements (incl. ADA) 23.0% 10.98$ 67.49$ 448,416$ 3,587,329$ Building Improvements - Exterior 28.0% 13.34$ 81.98$ 544,696$ 4,357,570$ Building Improvements - Interior 0.0% 0.00$ 0.00$ -$ -$ Construction Reserve 10.0% 6.0% 2.85$ 17.54$ 116,535$ 932,283$ Building Permits 0.3% 0.14$ 0.88$ 5,827$ 46,614$ Soft Costs (General Project) 3.6% 1.72$ 10.56$ 70,156$ 561,244$ Development Fee 5.0% 2.38$ 14.62$ 97,137$ 777,099$ A&E 1.6% 0.78$ 4.81$ 31,957$ 255,656$ Legal (Leases + Sale Agreements) 0.4% 0.20$ 1.22$ 8,125$ 65,000$ Property Taxes (During Construction) 1.08% 0.3% 0.16$ 0.96$ 6,403$ 51,224$ CAM Fees (Prior to Rent Commencement) 0.0% 0.00$ 0.00$ -$ -$ City Development Impact Fees 3.0% 1.42$ 8.70$ 57,800$ 462,403$ Construction Management Fee 3.0% 2.0% 0.94$ 5.79$ 38,457$ 307,653$ Tenant Improvement Allowance 0.9% 0.44$ 2.73$ 18,125$ 145,000$ Leasing Commissions (not sale com.) 5.5% 2.65$ 16.26$ 108,060$ 864,482$ Total Development Costs 100.0% 47.69$ 293.09$ 1,947,374$ 15,578,989$

FINANCING COSTS Fee % %TDC APYInterest - Senior Loan 1.4% 7.77% 4.02$ 26,694$ 213,551$ Points and Fees - Senior Loan 1.8% 1.3% 3.85$ 25,559$ 204,474$ Interest - Preferred Capital Loan 0.0% NA 0.00$ -$ -$ Points and Fees - Preferred Capital Loan 0.0% 0.0% 0.00$ -$ -$ Interest - Subordinate Loan 1 0.9% 16.07% 2.75$ 18,273$ 146,187$ Points/Fees - Subordinate Loan 1 3.0% 0.1% 0.35$ 2,337$ 18,695$ Interest - B Members Equity 0.5% 8.30% 1.50$ 9,959$ 79,674$ Points/Fees - B Members Equity 0.0% 0.0% 0.00$ -$ -$ Total Financing Costs 4.3% 2.03$ 12.47$ 82,823$ 662,582$

Total Development Costs + Financing Costs 104.3% 49.71$ 305.56$ 2,030,196$ 16,241,570$

PROJECT ROLLUP FAR Land Area Building Area Units Prorata Land Schedule0 0.16 326,700 53,154 8 100.0% Land Acq. Date 3/31/2013 3

DEVELOPMENT COSTS Input %TDC $/SF Land $/SF Bldg $/Unit $ Schedule SummaryAcquisition Price 11.3% 5.41$ 33.25$ 220,938$ 1,767,500$ Milestone Duration (Mos) Ending Period Start Date End DateAcquisition Escrow Fees 0.1% 0.06$ 0.38$ 2,500$ 20,000$ Site Acquisition: 1 3 3/31/2013 3/31/2013Off Site Improvements 8.8% 4.22$ 25.92$ 172,241$ 1,377,930$ Pre-Development Period: 22 24 3/31/2013 12/31/2014On Site Improvements (incl. ADA) 23.0% 10.98$ 67.49$ 448,416$ 3,587,329$ Construction Period: 12 35 12/31/2014 12/31/2015Building Improvements - Exterior 28.0% 13.34$ 81.98$ 544,696$ 4,357,570$ Stabilization Period: 3 38 12/31/2014 3/31/2016Building Improvements - Interior 0.0% 0.00$ 0.00$ -$ -$ Project Closeout: 1 38 3/31/2016 3/31/2016Construction Reserve 10.0% 6.0% 2.85$ 17.54$ 116,535$ 932,283$ Total Project Duration: 36 38 3/31/2013 3/31/2016Building Permits 0.3% 0.14$ 0.88$ 5,827$ 46,614$ Land Holding Period: 35 38 3/31/2013 3/31/2016Soft Costs (General Project) 3.6% 1.72$ 10.56$ 70,156$ 561,244$ Development Fee 5.0% 2.38$ 14.62$ 97,137$ 777,099$ Financing SummaryA&E 1.6% 0.78$ 4.81$ 31,957$ 255,656$ Legal (Leases + Sale Agreements) 0.4% 0.20$ 1.22$ 8,125$ 65,000$ Max Outstanding Equity Capital 2,271,417$ Property Taxes (During Construction) 1.08% 0.3% 0.16$ 0.96$ 6,403$ 51,224$ CAM Fees (Prior to Rent Commencement) 0.0% 0.00$ 0.00$ -$ -$ Construction Loan Commitment 12,102,267$ City Development Impact Fees 3.0% 1.42$ 8.70$ 57,800$ 462,403$ LTV 52%Construction Management Fee 3.0% 2.0% 0.94$ 5.79$ 38,457$ 307,653$ LTC 75.7%Tenant Improvement Allowance 0.9% 0.44$ 2.73$ 18,125$ 145,000$ Stabilized DSCR 1.61xLeasing Commissions (not sale com.) 5.5% 2.65$ 16.26$ 108,060$ 864,482$ Total Development Costs 100.0% 47.69$ 293.09$ 1,947,374$ 15,578,989$

FINANCING COSTS Fee % %TDC APY Land 1,787,500$ Interest - Senior Loan 1.4% 7.77% 4.02$ 26,694$ 213,551$ Improvements - Hard Costs 10,609,379$ Points and Fees - Senior Loan 1.8% 1.3% 3.85$ 25,559$ 204,474$ Improvements - Soft Costs 3,182,109$ Interest - Preferred Capital Loan 0.0% NA 0.00$ -$ -$ Financing Costs 662,582$ Points and Fees - Preferred Capital Loan 0.0% 0.0% 0.00$ -$ -$ Total 16,241,570$ Interest - Subordinate Loan 1 0.9% 16.07% 2.75$ 18,273$ 146,187$ Less Contingency Reserves (932,283)$ Points/Fees - Subordinate Loan 1 3.0% 0.1% 0.35$ 2,337$ 18,695$ Total Dev. Costs less Reserves 15,309,288$ Interest - B Members Equity 0.5% 8.30% 1.50$ 9,959$ 79,674$ Points/Fees - B Members Equity 0.0% 0.0% 0.00$ -$ -$ Total Financing Costs 4.3% 2.03$ 12.47$ 82,823$ 662,582$

Total Development Costs + Financing Costs 104.3% 49.71$ 305.56$ 2,030,196$ 16,241,570$

INCOMENet Operating Income - Pre-Demolition 0% 0.00$ -$ -$ Net Operating Income - Stabilization Period (Pre-sale) 0% 0.22$ 1,470$ 11,756$ Tenant's Permits/Impact Fee Reimbursement 0.00$ -$ -$ Public Subsidy Income 0.00$ -$ -$ Net Sale Revenue (net of transaction costs) 5.56% cap 417.85$ 2,776,272$ 22,210,175$ Total Income 68.02$ 418.07$ 2,777,741$ 22,221,932$

SUMMARY Sale SummaryNet Sales Revenue (net of commissions, escrow fees) 22,221,932$ Gross Sale Price 23,209,779$ Sale Commission (%) 4.0%Less Development Costs 15,578,989)($ Price / Unit 2,901,222$ Leasing Commission ($/SF) 16.26$ Less Financing Costs 662,582)($ Price / SF 437$ TI Allowance 3.75$

Gross Distributions (Profit) 18.31$ 112.51$ 747,545$ 5,980,361$ Annual Rent / SF 24.41$ Total Renovations (incl. TI) 103.27$ Vacancy + Mgmt Dragoff 0.5% Partner Share Development Profit 1,818,458$

Less Warranty Reserve -$ NOI 1,290,075$ Partner Pref Return 306,430$ Net Profit after Warranty Reserve 5,980,361$ Sale Cap Rate 5.56% Total Partner Profit 1,818,458$ Warranty Reserve 10 year value: -$ Current value: -$ Unleveraged Cap if Held 7.94% Developer Profit 4,161,903$

STEP 2 – ACQUISITION

ACQUISITION

• “It’s all in the buy.”• Site Identification•Use of Options•Communication with Seller 

•Create an Alliance•Broker Network•Community Development Director

STEP 3 – ENTTLEMENTS

ENTITLEMENTS

• Zoning• CEQA ‐ EIR / “Neg Dec”

• Impacts to Infrastructure• Traffic • Water• Sewer

• Impacts to Habitat – Human & Non‐Human• Sound• Light• Air Quality• Biotics• Economic

CURRENT COMMERCIAL DEAL

STEP 4 – DESIGN

CURRENT COMMERCIAL DEALCURRENT COMMERCIAL DEAL

DESIGN

• Architects• Civil Engineers – Parcel Mapping• MEP Engineers – Mechanical Electrical Plumbing• Must Consider Input from Multiple Parties

• Developer• Tenants• Civic Leaders• Financiers• Property Managers

STEP 5 – OBTAINING TENANTS

OBTAINING TENANTS

• Lease, Pad Sale, Ground Lease

• Brokers • Real Estate Directors• ICSC• Local, Regional, National

• Fundamental Leasing Deal Points• Rent• Rent Increases• Term• Size• Common Area Maintenance –Gross vs. NNN

• Landlord Concessions: • TI Allowance• Free Rent

STEP 6 – CONSTRUCTION

CONSTRUCTION

• Budget• Schedule• General Contractors• Construction Management

STEP 7 – ASSET MANAGEMENT

ASSET MANAGEMENT

• Collection of Rent• Maintenance• Leasing• Reporting

STEP 8 – DISPOSITION

DISPOSITION

• CAP Rates• Net Operating Income / Sale Price = Cap Rate• Sale Price = NOI / Cap Rate

• IRR• Leverage• Individuals, Institutional, Permanent Financing

RECAP

RECAP

1. Financial Analysis2. Acquisition3. Entitlements4. Design5. Obtain Tenants6. Construction7. Asset Management8. Disposition

• 23M = 1.2Mx• 1.2M/23M = 5%

www.grandcoastcapital.com

Grand Coast Capital Group350 Lincoln Street, Suite 2503

Hingham, MA 02043(857) 206‐6464

Grand Coast Capital Group – Lending Division(857) 206‐6464 ext. 1

contact@grandcoastcapital.com

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