Case study about real estate development, street mall

This is the PPT about case study about street mall development in Carrollton. 

Neighborhood Developer

This is the project that John is doing.

I met John Chong. He is the CEO of DIRA which is the company to proceed Condo project in Carrollton. Until now on, this project is very successful. Already, over 80% of condos were sold out.
It started construction around 2 weeks ago. The biggest group of customer buying condos is asian.

He said that there are many opportunity around Hmart in Carrollton. This area has biggest asian mart and biggest spa&waterpark in Texas. The area could be symbol of asian culture in Texas. This might bring many visitors and customers from outside.

And, according to him, the hardest thing in development is funding and lending. To get good condition of lending, I have better to get some equity investors, or land provider.

To lower the construction cost, it is also very important to increase profitability. That is the reason why he always involved in construction by himself,  not as only developer.

Carrollton City's Tax Incentive

I emailed Peter J. Braster in Carrollton City hall. He is a senior manager in Transit-oriented development. I asked about some benefit when I would develop a street mall in Carrollton. 

He emailed back to me like this. 

The City of Carrollton has limited options to incentivize/ support development.  First the project must have a commercial use.  A mall would qualify.  Tax abatements would be the only available option for the City since we are a member of DART and our 4a and 4b sales tax money goes to DART, we can’t use incentives like Frsico does.  For our incentive policy look one our website here:  City of Carrollton Incentives  You can figure out what kind of rebate a mall project would get based on the table.

Let me know if you have any more questions.

With Peter's help, I could find the incentive policy in Carrollton city. 

This is the link of the website which has the policy.

http://carrolltontxdevelopment.com/index.aspx?page=1373

This is the tex reduction rule in Carrollton city.

And, I could get some PPT resource about the Reiford Project. 

Fundng Advice

I contact Ted Kim, vice president of Chase Bank. He is very high rank lending officer in Chase. Actually, he is not side of Real Estate lending. I begged pardon some advice based on his experience and knowledge.  

He advices me if this project could show reliability and profitability. The real estate part in Chase could invest in this project. 

Current preferable LTV of Chase is 80%. And, interest rate is around 6.5% on this kind of project.

But, if the lending period is just 10years, I might be around 3.54% with the condition that interest rates change every 5 years. 

Idea for construction-fabric roofing

I met Josep Kim who is the president of Nissi Group to get some advice about my development project. He is developing and constructing a water park in Dallas. He said that covering with fabric roof on street in Texas is great idea. There is no such  unique street mall in Texas ever. It could reduce risk in summer that shopping people or visitor disappear.

And, he recommended roof materials. That is the Tensile membrane. It is very popular fabric roof type. And, also PTFE roofing. PTFE was used to some sports stadium in Korea for 2002 World Cup. 

Tensile membrane

PTEF roof in soccer stadium in Korea

The problem is cost. But, it is not that expensive. According to my research, the fabric costs $50 per square meter.

REAE5323_My Project

I want to develop a street mall in Carrollton. The city has the development plan known as Reiford project. They has huge development plan which include hotel, residence, office and street mall.  I'd like to adopt some feature on this project which has never been to Texas. It is perfectly fit to  hot weather in Dallas. I will develop a street mall that has a fabric roof on the street. It can make vistors avoid sun light and rain, even hail.

Reiford project in Carrollton city

This is the example of street mall has a fabric roof on street. This is the western dorm shopping district in Korea.

The western dorm in Korea

Marketing & Management plan

Underfloor heating 

Underfloor heating's cost of installing varies by boiler quality and brand, also pipeline's type. But, usually, it takes around $20 per square feet with moderate brand and pipe type. In contrast, central air and heat system in the US is comparably cheaper than underfloor heating. It might take from $0.29 per sf to $5 per sf. At least, underfloor heating cost for installing is 4 times more expensive than central air heating. 

1100 Trinity Mills heating system cost for installing

- underfloor : $20*220,000=$4,400,000

- Central air : $5*220,000=$1,100,000

Buyer charge for underfloor heating

-Cost for heating system increases $15 per sf

  --> 3,300,000(4,400,000-1,100,000)/220,000=$15

Marketing Plan for underfloor heating

There are two ways to cover the cost of installing underfloor heating. One of them is sharing the cost between a developer and a buyer. Each part could charge $7.5 per sf. Then the price of condos would increase from $125 per sf to 132.5 per sf. And, in this assumption, this project still has feasibility if the occupancy rate is over 90%. 

  - The total amount money that the developer can earn from this development is ($125x110,000)+($132.5*110,000)=$28,325,000

  - Total construction cost with underfloor heating is $22,300,000+3,300,000=$25,600,000

  - 25,600,000/28,325,000=0.9

The other way is giving options to a buyer whether they buy a condo with underfloor heating system or not. If they want to buy the condo which has underfloor heating system, they should pay $15 more per sf . 

Green Roofing 

Estimation for green roofing has very wide rage of price. I assume 5,000 sf of green zone on rooftop. And, the type of green roofing is the Paks type. According to the estimation calculator of Green Roof Blocks, the total price for green roof is $72,119.50.

1100 Trinity Mills green roofing cost for installing

5,000sqft = $72,119.50

Marketing plan for green roofing

A developer could rent this green roofing area to residents for urban agriculture uses. If the developer rent this $3 per sf, simply payback year is 5 years. And, this green roofing area could be maintained by Home Owners Association in 1100 Trinity Mills after 5 year. 

LED Lamp's marketing plan

The developer could hand over the decision to buyers about installing LED lamps. If they want to have LED lamp in their house, buyers should pay additional charge. For this,  the developer has to explain about benefits of LED lighting and short payback period. And, the developer should install LED lamps in public space. 

Management Plan

1100 Trinity Mills will be managed by HOA(Home Owners Association). HOA will represent 1100 Trinity Mills after this condo building is built.

HOA has right to correct monthly fee for management from owners. A owner might pay around $150 to $250 per unit. Annual budget for 1100 Trinity Mills is around $400,000. It would be used for paying salary of a manager. And, also, it will cover cost of maintaing green roof and LED lamp in public zone in 1100 Trinity Mills. 

And, 10% of the annual budge will be reserved for improvement or remodeling condos in the future.    

Sustainable feature #3 - LED lamp

When I came to the US in three years ago, I found some differences in residential culture between Korea and the US. One of them is lighting. Korean people likes bright lighting and day light bulb in house. Thus, I changed all light bulb to energy efficient day light bulbs. 

LED light bulbs

1100 Trinity Mills is advertising that their condo is luxury home. I think that it is needed some differential factor to differentiate their condo as a luxury house. An LED lamp could do this role in condo. 

The LED lamp is five times more expensive than Fluorescent lamp. But, it is worth to adopt.

The LED light bulb is a solid state lamp that uses light-emitting diodes(LEDs) as source of light. This light has huge benefit to save energy costs.That's why currently many new condos and houses use LED lighting. According to the US Department of Housing and Urban Development, a condo property with 80 to 125 units could save between $6,000 and $12,000 annually with LED lamps. The property could also reduce the CO2 emissions by 1.3 million lbs over the life of the LED lamp. 

 Furthermore, the cost of LED lamp is decreasing. According to LED savingsolutions.com, "given that the cost of the LEDs is increasingly competitive, the payback for owners often comes inside of two year. So an investment that pays for itself in two years that then has a life of 6 or 8 more after the payback generates a very favorable return on investment of 50% or more year over year. 

Benefits

- great energy saving 

- reducing CO2 emission

- favorable return on investment 

- bring an image of luxury condo

*5 times more expensive than other bulbs. But, over 2 year, it could be returned by saving energy costs.  

Sustainable feature #2 - Green Roof

Green Roof

I want to suggest green roofing to 1100 Trinity Mills. Green roofing could bring big interests from public because green roofing is not common in Texas. And, especially, I want to make this green area which can raise vegetables because usually Asian'd like to raise vegetables in their own yard. A developer can rent this green area to residents. It also could be some model to make profit. By renting green area of roof for urban agriculture, additional construction cost for green roofing would be covered. 

Green roofing has many benefits. First of all, it could reduce energy costs. It reduce energy which could be used for air conditioning. Green roof works like a barrier to thermal transfer of the sun's energy through the roof. It could cool the air above the roof and absorb incoming solar radiation. It is perfectly fitted to crazy summer in Texas 

And, also it has a function to reduce noise. Green roof system could be a sound insulation barrier which absorb sound waves. 1100 Trinity Mills is right next to highway. Thus, sound barrier is very important to comfort life in condos.

Rice planting on roof top in Roppongi Hill in Tokyo

One of the best green roofing example is Roppongi Hill in Tokyo. They are even planting rice in rooftop garden. Every year, they have a event to plant new rice tree in rooftop. The company invites children and their family for this event. It is very good marketing point.   

Benefits

- Reduce energy costs

- sound barrier

- opportunity for urban agriculture

- good marketing tool

* It need additional funding to construct green roofing. But, by renting the green area for urban agriculture, the cost could be covered. And, recently, government give some incentive for this kind of sustainable features.  

Sustainable feature #1 - Ondol/Underfloor Heating

Ondol

Have you heard about Ondol? This is the Korean traditional heating system. We also call it Gudeul. This is simply implying underfloor heating. This uses direct heat transfer from burned wood smoke to the underside of a thick masonry floor. Korea still uses the innovated modern Ondol system to all kinds of residential buildings. Thus, Korea has very outstanding technique about a boiler for underfloor heating system. I want to adopt this boiler to 1100 trinity mills as sustainable feature because it can save energy and make better air quality.

Installing pipe lines under floor

Pave the pipe line

Korean common room with underfloor heating system

Modern underfloor heating system works by either hot water or electric heating. I want to adopt hot water heating system which are very popular in Korea. The water running under floor in pipe line heat the room.

Underfloor heating system has a lot of benefits to use in condos. First of all, it is energy efficiency. We can easily think this is more efficient than air conditioning system in the US because the heating energy from floor hot air rises. And, it can control the temperature by room and zone. It can save energy around 15% to 40%. 

Underfloor Heating System

And, it is good to control temperature individually by personal preference.  

This system has a positive effect on indoor air quality because it is essential to facilitate cold flooring materials such as concrete, tile, slate, terrazzo to adopt the underfloor heating system. Thus, this underfloor heating system could reduce the moisture content of a room. 

But, maintaining and installing is more expensive than other heating system because of installing pipeline under floor. 

Benefits

-save energy(efficiency)

-zoned heating control

-Asian preference

-air quality

* but installing and repairing price could be higher than other heating system.

Sustainable Features for 1100 Trinity Mills

1100 Trinity Mills has feasibility to develop and make profit. But, it is not enough to make this project to be seen as outstanding condo. I determined some sustainable features to make this condo more attractive. For efficiency and oriental concept for Asian customer, I added some rare boiler system in the US. This is underfloor heating.  This system can make it possible zoned heating control. I also adopt very charming sustainable feature which can bring interests from public. This is a green roof. And, usually, Korean people like bright lighting. Thus, I adopt LED lighting.

Sustainable features

- Underfloor heating

- Green roof

- LED lighting

Financial Analysis and Conclusion(5, end)

General financial information

-Selling Price $125 per sqft

-Leasable area : 220,000sq.ft

-Construction cost : $25,000,000(estimation from RSMEANS QUICK COST ESTIMATOR)

estimated construction cost of 1100 Trinity Mills
*The developer does construct buildings by itself. Thus, he could save construction cost as much as he can. 

-Land Price : around $3,000,000

-Units Price 

 

Unit	Sqft.	Price
1Bed, 1 Bath	700	$87,500
1Bed, 1 Bath, Den	1,000	$125,000
2Bed, 2 Bath	1,100	$137,500
2Bed, 2 Bath, Den	1,295	$161,875
2Bed, 2 Bath, Den	1,300	$165,000

Development Costs

+ Construction Costs (PSF)	$114.00	$100.00
x Total Square Feet	220,000	220,000
= Total Construction Cost	$25,080,000.00	$22,000,000.00
+ Land Acquisition Costs	$3,000,000.00	$300,000.00
= Total Development Costs	$28,080,000.00	$22,300,000.00
- Governmental Rebates for Energy/Sustainability	$-	$-
= Revised Development Costs	$28,080,000.00	$22,300,000.00

* The total amount money that the developer can earn from this development is $125x220,000=$27,500,000. Thus, if the maximum cost per sf of the construction is $100,  and the vacant rate is under 19%,  this project is worth to do.


Conclusion

When I heard about this project at first time, I was easily sure that this project's feasibility is very high. It is because the location of this condo is fantastic. There is the Super H-mart right next to 1100 Trinity Mills. 4 years ago, before H-mart did not open yet, around the shopping mall, that has H-mart now, was half empty. But, now the shopping center is full of tenants. And, apartments around this shopping center is very popular for Asians. Thus, average occupancy rate is over 95%. That is why I could determine the condo's location is really good. 

According to my financial analysis, the project has a feasibility if the condos could be sold over 81%. Within 6 weeks after the development company(DIRA) started pre-sale, 88 units(61.54%) out of total 143 units have been sold. to sell condos. The developer have a plan to raise selling price. This project is about to start construction. It is supposed to start the end of April 2012. 

Does this development project have feasibility? My answer is absolutely "Yes". 

Market Analysis(4)

zip code 75007 area where 1100 Trinity Mills is included

This area has high population density. 4,238 per square mile live in Zip 75007. Salary($53,694) is over than state average.  And, also, household income in 2010 is $71,753. This is 45% more than average household income in Texas. And, vacancy rate is very low. The housing vacant rate in Carrollton was 3.45% in September 2010. In same period, the vacant rate in the US was 10.37%.  

The data from citydata.com

Summary

-zip 75007

-average home sale price is around $160,000

 :1100 Trinity Mills($135,375) has price competitiveness)

-% of renters is 29%(state 36%)

-4,238 people per square mile

-Estimated median house/condo value in 2010 is $213,984(Texas $127,400)

 : 1100 Trinity Mills provides good investment opportunity

-Median resident age is 34.6 years old

-Average household size is 2.4 people(Texas 2.8)

-Average Adjusted Gross Income(AGI) in 2004 is $56,481(Texas $47,881)

 : The condos targe is young professionals. The people who are living around this area are affordable to buy 1100 Trinity Mills

-Salary/wage is $53,694(State $41,947)

-Estimated median household income in 2010 is $71,753(Texas $49,585)

-Public primary/middle school in zip code 75007

 :Davis Elementary, Kent Elementary, Furneaux Elementary, Thompson Elementary, Rainwater Elementary, Rosemeade Elementary, Huie special Education Center. 

-Housing Vacant rate is 3.45%(US 10.37) in September 2011

Regulatory Analysis(3)

The site that the condo will be built is LR-2 zone. It means that the area is Local Retail Districts, non residential district. But, the city allows the condo could be built in this zone. And, they are doing process to change the zoning. Carrollton city emphasizes that this site will be high density TOD zone.  

site zone(LR-2)

The most attractive regulation for this condo is the Community Reinvestment Act(CRA). This area was appointed as CRA zone. CRA is a federal act that is designed to boost reinvestment on underdeveloped community. Under CRA, homebuyers can get a home mortgage loan with only 3% down payment. The interest rates is from 4.25% to 4.5%. Minimum credit score for this loan is 620. And, the Deb to income ratio is at least 48%. Government officer such as police, fireman, teacher can get home loan with 0% down payment. The Compass bank provides this loan under CRA. 

*CRA definition(from Wikipedia)

The Community Reinvestment Act (CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901) is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.

The Act instructs the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.) To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804.)

Summary

-LR-2 zone(Local Retail District), but the city allows to build condos

-CRA district. Home loan with 3% down payment with 4.25%~4.5% interest rates

Site Analysis(2)

The gross land area is a 4 acre. And, the condo is a 4 story building with 220,000sf, net leasable area. The number of total units is 143. There will be 291 total parking spaces(over 2 cars per unit). There are 6 types of units such as one bedroom(700sf), one bedroom(745sf), one bedroom(1,000sf), two bedroom(1,100sf), two bedroom(1,295sf), two bedroom(1,300sf). This condo will have a court yard, business center, lounge, fitness center, swimming pool.

property maps

The City of Carrollton was ranked 12 by the Forbes among the America's 25 best place to move in 2009. In the most vibrate area in the center of Carrollton city, the 1100 trinity mils is about to be built. 

This condo has big locational benefit. 

Location

Super H-mart next to 1100 Trinity Mills

The condo is right next to the H-mart that is the biggest asian mart in Texas. According to the former manager of this H-mart in Carrollton, the weekly revenue is over 1million. On weekend, the parking lot is full of cars. The capacity of this parking lot is over 1,000 cars. Around this H-mart, big asian town was formed which has restaurants, hospitals, dentals, CPA and lawyer offices, bar and Karaoke, book store. It means that this condo is the best place to live for asians. That is why the condo's developer is targeting the segment of asian residents. 

And, this condo is right next to 191 toll road. And, it is very convenient to access to 35E. Also, DART station, Trinity station, is within 2 miles. 

Raiford Project

 One more thing to consider for site analysis is the Raiford project. Carrolton city has plan to change the area around the condo to mixed use development site. This is the Raiford project. This area already have Wal-mart, Lowe's, Spa Castle(luxury spa and hotel, the biggest building in Carrolton). Hotel, residence, office, street shopping mall will be built according to this Raiford project. Carrolton city support this condo project on many aspects. 

Spa Castle(the biggest spa in Texas)

Summary

- 4 acre land, 4 story, 220,000sf(net leasable area), 143units, 291 parking space, 6types units.

-Carrolton city is 12 ranked best place to live

-Right next to the biggest asian mart in Texas and big asian town.

-near 191 toll road, 35E, DART station

-The Center of Raiford project