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South Park Property Overview
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  • 1. SOUTH PARK CHARLOTTE, NORTH CAROLINA CONFIDENTIAL MEMORANDUM
  • 2. SOUTH PARK TABLE OF CONTENTS SECTION PAGE EXECUTIVE SUMMARY 3 FINANCIAL SUMMARY 5 REASONS TO INVEST 5 PROJECT RISKS 9 MARKET SNAPSHOT 10 RENT COMPARABLES 13 SALES COMPARABLES 19 APPENDIX 1 – AERIALS, MAPS AND SITE PLANS 20 CONFIDENTIAL PRIVATE AND STRICTLY D. Mills 2
  • 3. SOUTH PARK EXECUTIVE SUMMARY Project Name South Park Location The site is ideally located along Fairview Road, and sits equidistance between Fairview’s intersection with both Park Road and Sharon Road; two of Charlotte’s most heavily traveled corridors. Located approximately five miles due south of Charlotte’s Central Business District (“CBD”), the area’s largest employment sector, the demographic makeup of the South Park sub-market is in-line with our target market. The property’s proximity to South Park Mall significantly enhances the site’s desirability. Anchored by a Neiman Marcus, Nordstrom, Dillard’s, Macy’s and Belk, the mall is a major destination for the region and has acted as a catalyst for continued high-end development in the surrounding area. Site The site, located at 6010 Fairview Road, consists of approximately 10.533 acres and is immediately adjacent to two +/- 15-story Class-A office buildings, both of which are served by separate four level structured parking decks. The topography of the site is relatively flat in nature and presently provides additional parking for the aforementioned structures. Timing Prior to the recent acquisition of the site by ___________ (d.b.a. ___________), the previous owners, LNR Property Corporation, successfully had the property rezoned from 0-1 and 0-3 (office districts) to Mixed Use Development District with Optional Provisions (“MUDD-0”). As approved, the present zoning classification allows up to 185,000 square feet of Retail, 685 residential units and 150 hotel rooms. D. Mills 3
  • 4. SOUTH PARK While ___________’s future role in the proposed development continues to remain in the formative stages, it is anticipated that the existing residential component of the aforementioned classification is more than sufficient to support Proposed Project The present MUDD-O zoning classification allows for a mix of uses to include residential, retail and hotel. While the proposed development will seek to maintain the aforementioned zoning classification, the degree to which use-related changes will be made has yet to be determined. Based on initial discussions with ___________, the retail developer of the site, the present plan is to incorporate both retail and residential uses. To accommodate the site’s need to maximize retail square footage, podium construction will used with retail occupying the ground floor and four floors of stick-built residential above the street level base. The proposed development will consist of 330 residential units and parking for both retail and residential will be provided through a combination of both surface and structured parking. The residential design will include an integrated resident amenity center that will house a club room, fitness center, computer room, media room and access to a resort style swimming pool. In addition, a street-level leasing center will be constructed to take advantage of the foot traffic that will be created by the retail uses. Due to the site’s proximity to Charlotte’s CBD, it is anticipated that the Target Market proposed development’s perspective tenant base will consist of young professionals and growing families. Tenants will not only benefit from easy access to their place of employment, but will also enjoy the site’s surrounding amenities. Rental Unit Mix Although the exact unit mix has yet to be determined, the 330 unit development will primarily consist of one and two bedroom units that will average 850 and 1,100 square feet, respectively. Should additional market research determine a need for three bedroom units, D. Mills 4
  • 5. SOUTH PARK the design will be adjusted to accommodate the proven demand for these units. FINANCIAL SUMMARY (TO BE INSERTED) REASONS TO INVEST The South Park site represents a unique opportunity for ___________ to acquire a marquee site that will ensure a high profile entry into the Charlotte-Mecklenburg marketplace. Once completed, the development will enjoy great visibility from Fairview Road and will benefit from an abundance of cars that travel past the site each day. Located in one of Charlotte’s most desirable sub-markets, comparable properties are able to demand some of the highest rents in the area and are also currently outperforming most of the market as it pertains to overall vacancy at 7.9%. While the uncertainty of Wells Fargo’s pending acquisition of Wachovia has been cause for concern during the past few months, it is important to note that Charlotte is the second largest banking center in the United States, next to New York. In addition to Bank of America, which is headquartered in Charlotte, the area is home to numerous large employers that include, but is not limited to, Duke Energy, Carolinas Healthcare System, UPS, US Airways, TIAA-CREF, Adecco, Compass Group, IBM, AT&T-NC, BB&T, Time Warner Cable and Wells Fargo Home Mortgage. While job growth remained relatively flat in the region over the past year, the job growth rate did increase by a positive 1.2% between February and August of 2008. While it is impossible at this time to forecast the impact the Wells/Wachovia merger will have on the region, several local employers have announced additional jobs that will be created in the forthcoming twelve to thirty six months. IBM, Pharmaceutical Product Development, Time Warner Cable, Maersk, ATI Allvac and Tessera Technology have announced the creation of more than 1,500 new jobs for the region. D. Mills 5
  • 6. SOUTH PARK The site is located less than five miles from the Bank of America Stadium and Time Warner Arena. The site’s proximity to South Park Mall provides an abundance of both local and national retailers and will almost certainly serve as a primary attraction to potential residents. Not only will residents be able to walk to the mall, they will also be able to frequent numerous restaurants and entertainment venues in the immediate area. From a recreational standpoint, residents will enjoy onsite amenities (pool and resident fitness center) as well as easy access to several community parks in the area. In addition, the site is located less than five miles from the Bank of America Stadium (home of the NFL’s Carolina Panthers) and the Time Warner Arena (home of the NBA’s Charlotte Bobcats). Location The property’s location in the South Park sub-market coupled with its proximity to Charlotte’s Central Business District (the region’s largest employment sector), makes the South Park site an attractive housing option for residents whose household income reflects our target demographic. In addition to its proximity to an abundance of employment options, the site also provides easy access to several major thoroughfares, as well as Charlotte Douglas International Airport. With the exception of the Downtown sub-market, the South Park sub-market (reflected below as Southeast-1) demands the highest average per square foot rents at $0.954. The “Comparative Rents” graph below highlights how the Southeast-1 sub-market compares to other sub-markets within the region. D. Mills 6
  • 7. SOUTH PARK Tightening Market Several recent regional studies have predicted that the Charlotte-Mecklenburg region, like many similar markets throughout the United States, will continue to experience the economic crunch that has impacted the American economy. It is unclear when a turnaround will occur. While the creation of jobs is expected to remain static during the foreseeable future, it is expected that the desirability of the South Park sub-market, coupled with its proximity to high paying jobs, will continue the trend of sub-market experiencing a positive influx of new residents. A perceived oversupply of multi-family units in the South Park sub-market (reflected below as Southeast-1) can directly be attributed to proposed developments along the South Boulevard Light Rail Corridor. According Real Data’s September 2008 Apartment Index Study, there are a total of 1,615 units presently under construction in the Southeast-1 sub-market. It is important to note that approximately 1,270 (roughly 78%) of those units are located along the South Boulevard Corridor. Of the remaining units, it appears that none will be in direct competition when the subject property is delivered to the market. D. Mills 7
  • 8. SOUTH PARK The following “Comparative Absorption” graph shows that the Southeast-1 sub-market was ranked fifth among all Charlotte sub-markets, having absorbed a positive 109 units during the previous six months. While this statistic is not overwhelmingly impressive, it is important to point out that no new units were delivered during this same period. Real Data’s report also forecasts an additional 2,234 units are on in the planning phase. Again, a majority of these units are proposed along the South Boulevard Corridor and, as such, it is anticipated that as many as 50% of these developments will not come to fruition. Barriers to Entry While small tracts in the Southeast-1 sub-market (which includes South Park) still exist, land properly zoned to allow multi-family development is scarce. This coupled with the fact that adjacent neighborhood groups are often vocal in opposing multi-family development makes the “by right” status of the South Park property an invaluable asset. Although this sub market has seen a relatively sizable increase in new construction multi-family during the past several years, activity has primarily been attributed to the South Boulevard area along the City’s recently completed light rail system. The lack of developable sites in the area surrounding the subject site large enough to accommodate multi-family will act as a barrier to future competition. D. Mills 8
  • 9. SOUTH PARK PROJECT RISKS / OPPORTUNITIES The Charlotte-Mecklenburg region has not been immune from the same economic woes that have plagued the country during the past twelve months. While this is a relatively serious concern, the subject property’s location in one of the more economically stable sub-markets, coupled with the scarcity of available multi-family land should help offset some of the market- associated risk. While it is yet to be seen what type of impact the Wells Fargo / Wachovia merger will have on the local economy, it is important to note that the region does not attribute an unbalanced share of it employment demographics to the banking industry. In addition, Bank of America, which is a much larger institution and employer than Wachovia, is, by all accounts on stable ground. The following chart provides a breakdown of the employment sectors in the market and the percentage of employees that are attributed to each of those classifications: It is also important to note that the property is presently zoned to allow the proposed residential and retail uses. The citizen-lead groups that represent the residential communities surrounding the site are known to be a very vocal when it comes to rezoning petitions. A contentious rezoning would subject the property to a public process that could last up to two years. The site’s “by right” status is an invaluable asset in moving forward with the proposed development. In addition, the desirability of the location coupled with its proximity to high paying white collar D. Mills 9
  • 10. SOUTH PARK jobs will enhance the developments ability to achieve per square foot rents that are reflective of the comparable properties featured in later in this report. The majority of risk associated with this property outside of achieving forecasted rents and reaching stabilization is primarily limited to the time it takes to secure all of the municipal approvals necessary to initiate construction. While it is tough at this time to forecast an approval timeline due to the uncertainty of the overall development plan, it is realistic to expect that the development could secure the aforementioned approvals within twelve months of the initial submission of a site plan. MARKET SNAPSHOT According to statistics compiled by Real Data in their September 2008 Apartment Index, there are a total of 6,771 multi-family units in Charlotte’s Southeast-1 sub-market. This sub-market represents roughly 8% of Mecklenburg County’s overall inventory and demands the second highest per square foot rent at $0.954 (see “Charlotte Submarket Comparison” chart below). While job growth in the Charlotte region has traditionally weathered nationwide downturns, the recent impact of the national economy has had a slight impact on the region. While there was a slight decrease in jobs between August of 2007 and February 2008 (799,548 down to 790,819), the region experienced a slight recovery to 800,245 during the months leading up to August 2008. The unemployment rate in the region has historically hovered below 5%, but has ticked slightly up during the past twelve months to a present rate of approximately 6.2%. While some D. Mills 10
  • 11. SOUTH PARK of this increase can be attributed to employment tied to the banking sector, steady decreases in service related jobs also have played a major role in the increase in unemployment. It is impossible to predict what overall impact the nation’s struggling economy will have on the Charlotte region, but it is anticipated that the Southeast-1 submarket will continue to outperform the majority of other submarkets in the near future. The chart below provides an overview of the historical trending of the unemployment rate as compared to the actual number of those employed in the market: The Real Data report shows that the Charlotte market’s overall vacancy rate had ticked slightly downward to 9.1%. (as compared to February 2008’s 9.2%). Although the region experienced a substantial increase in vacancy between August 2007 (6.8%) and February 2008 (9.2%), it is worth noting that the vacancy rate has remained somewhat static during the previous two reported periods. During the same period, rents increased from $735 in February of 2008 to $751 in August of the same year. In the Southeast-1 sub-market the average vacancy rate reported in August 2008 was 7.9% (1- Bd. 7.4%, 2Bd. 8.0% & 3Bd. 9.1%). These figures are much lower than the region’s average of 9.1% and represents a nearly 1.5 point decrease in the vacancy rate between February and D. Mills 11
  • 12. SOUTH PARK August (9.3% compared to 7.9%). The following graphs show the trend line attributed to this Southeast-1’s vacancy performance as compared to the market as a whole: D. Mills 12
  • 13. SOUTH PARK RENT COMPARABLES The following properties are comparable to the proposed development in size, available amenities and location: THE RESIDENCES AT SOUTH PARK 4300 SHARON ROAD, CHARLOTTE The Residences at South Park, developed by Hanover, is located on an out-parcel of South Park Mall. The property is located less than 2/10 mile from ___________’s site and is the closest comparable. The Residences was completed in 2007 and is presently 63% occupied. Amenities include a pool, work out facility, resident lounge and business center. The property also has high-end retail on the ground floor. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 73 1,219 $1745 $1.43 2/2 & 2.5 71 1,824 $3,129 $1.72 3/3 & 3.5 6 2,574 $5,576 $2.17 D. Mills 13
  • 14. SOUTH PARK STERLING MORRISON 721 GOVERNOR MORRISON ST., CHARLOTTE Sterling Morrison, developed by Grubb Properties, is the residential component of the Morrison Mixed- Use development. The project, completed in late 2007, includes 214 units and is presently 80% occupied. In addition to a pool, resident lounge and internet café, residents benefit from an abundance of walk- to retail which includes an Earth Fare Grocery Store and a Barnes & Noble. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 156 905 $1,198 $1.32 2/2 50 1,340 $1,557 $1.16 3/2 8 1,471 $2,000 $1.35 D. Mills 14
  • 15. SOUTH PARK POST UPTOWN 305 NORTH GRAHAM ST., CHARLOTTE Located within walking distance to Charlotte’s Central Business District, Post Uptown boasts a pool, fully – equipped fitness center, resident lounge, garage parking and a small amount of retail space on the ground floor. Completed in 2000, the property consists of 227 units and is presently 97% occupied. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 181 892 $1,275 $1.43 2/2 42 1,110 $1,576 $1.42 3/2 4 1,322 $1,877 $1.42 D. Mills 15
  • 16. SOUTH PARK POST PARK 4835 CAMERON VALLEY PARKWAY, CHARLOTTE The Residential component of the highly successful Philips Place Mixed-Use development, Post Park, developed by Post Properties, consists of 402 units and was completed in 1997. The property is located less than 3/4 mile from the subject property, and is presently is reporting a 94% occupancy rate. The property has a pool, fitness center and resident clubhouse. In addition residents can walk to an abundance of high-end retail. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 192 835 $927 $1.11 2/2 174 1,227 $1,362 $1.11 3/2 36 1,845 $2,435 $1.32 D. Mills 16
  • 17. SOUTH PARK POST GATEWAY PLACE 120 NORTH CEDAR STREET, CHARLOTTE Conveniently located within walking distance to Uptown, Bank of America Stadium, the new Performing Arts Center and Spirit Square, Post Gateway consist of 436 total units and is presently 97% occupied. Resident amenities include on on- site internet café, two swimming pools, fully-equipped fitness center, covered parking and secured access. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 330 740 $1,036 $1.40 2/2 99 1,306 $1,672 $1.28 3/2 7 1,961 $2,314 $1.18 D. Mills 17
  • 18. SOUTH PARK CAMDEN GRANDVIEW 309 E. MOREHEAD STREET, CHARLOTTE Located in the shadow of downtown Charlotte, Camden Grandview provides an abundance of resident amenities including a clubhouse, fully-equipped fitness center, pool and business center. In addition, the property has secured parking and controlled access to all common areas. Most units include a balcony. Completed in 199, the property consist of 266 units and is presently 94.7% occupied. Unit Total Average Average Avg. Rent Type Units Sq. Ft. Rent Per Sq. Ft. 1/1 140 879 $1,204 $1.37 2/2 105 1,300 $1,560 $1.20 3/2 21 1,610 $2,093 $1.30 D. Mills 18
  • 19. SOUTH PARK LAND SALES COMPARABLES (TO BE ADDED) SALES COMPARABLES (TO BE ADDED) D. Mills 19
  • 20. SOUTH PARK Appendix I: Aerial, Maps & Site Plans Aerial Site Overview The 10.533 acre site has direct access to Fairview Road and is immediately adjacent to South Park Mall. It is one of the last remaining large acre tracts in the South Park (Southeast-1) sub-market. D. Mills 20
  • 21. SOUTH PARK Aerial Overview D. Mills 21
  • 22. SOUTH PARK Initial Site Plan D. Mills 22