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70 Franklin Street
 

70 Franklin Street

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    70 Franklin Street 70 Franklin Street Presentation Transcript

    • 70 Franklin Street FIN G217 – REAL ESTATE FINANCE AND INVESTMENTS Matt O’Hearn Adam Cohen Rudolph Parker Joshua Pierce December 3, 2007
    • Agenda -Boston Economy -Building Overview -Investment Strategy -Investment Opportunities and Risks -Market Overview and Comparable Properties -Tenant Profiles - Financial Analysis and Underwriting Assumptions - Conclusion and Recommendation
    • Boston Economy •Boston economy is in the midst of a comeback •Employment growth (job creation & payrolls) is expanding Negative Job Growth Positive Job Growth 2002 -2.2% 2005 +0.8% 2003 -2.2% 2006 +1.5 2004 -.02% 2007 +1.6 (YTD) •In Boston, as of August 2007: Job growth for professional and business services = 2.8% annualized •Nationally, as of August 2007: Job growth for all industries = less than 1% annualized Source: Moody’s Economy.com
    • Boston Economy, Cont Monster.com’s Employment Index for Boston for 2006 The national leader in demand for high paying employees Demand for employees by employers +20% from October 2006 to October 2007 •Expansion of the Boston economy •Demand is high, Vacancy (supply) is low •Puts upward pressure on rents and availability
    • 70 Franklin Street
    • 70 Franklin Street •Class B property •Between the Financial District and Downtown Crossing •On a 12,258 square foot lot •84,400 square feet of office and retail space on 9 floors •Optimum space for most small or mid-sized businesses •Offers 4 store front locations for retail services
    • 70 Franklin Street, Cont  Part of an exclusive group known as “jewel box” buildings  A unique architectural style and were built in the late 1800’s  This exclusive group includes buildings such as:  84 State Street, One Liberty Square, and 45 Milk Street  Tenants are attracted to the attractive look of “jewel box” buildings  Design offers a more “boutique-like” feel for its tenants  No designated parking  Location proves favorable to retailers – Positioned between the financial district and the Downtown Crossing shopping district – As well as on routes for major public transportation centers  Downtown Crossing and Park Street T
    • Investment Strategy  Add value through leaseup of currently vacant space at market rates  Projected to take 12-24 months  Leasing Goals – Lease vacant office space on 2nd, 4th and 5th floors totaling 33,878 sf (40% of GLA) at market rates of $33 – Lease vacant retail space totaling 2,189 sf at $50 – Renew Rasky Bearlin (11,425 sf) at market rate prior to Dec. 2008 lease expiration  Upon stabilization, assess market conditions for opportunistic sale or long term hold
    • Positive Considerations/Upside Opportunities  Below Market Rents – Average in-place rent is $26.50 vs. most recent lease at $33.50 – a 20% differential  Leaseup of Vacant Space – Currently 51% leased, with little comparable vacancy in the Financial District  Leaseup/Upgrade Retail Tenancy – Finagle-A-Bagel and Papyrus both strong local draws – Potential to upgrade FFCU to national tenant – BoA, Citi, Citizen’s  Location – Highly desirable to small to mid-size service providers (PR, law/accounting firms, government agencies) requiring close proximity to downtown clients
    • Investment Issues/Risks  Increasing Uncertainty – Tenant caution leads to slower than expected leaseup of vacant space – Cautious underwriting and low vacancy in submarket offset this risk  Upcoming Rollover – Rasky Baerlin is largest tenant, expires in Dec. 2008 – Single 5 year option at market rates – Proactively work with tenant to secure extension ahead of expiration  Capital Market Factors – Significant pullback in financing, particularly for riskier/value-add properties – Reduced competition in bidding process, could reduce buyer pool upon exit – Plan to stabilize asset prior to exit will broaden buyer pool at exit
    • Market Overview Boston’s Financial District consists of 34 million square feet of Class A and Class B office space. At the end of the second quarter 2007, the Boston Office market had a vacancy rate of 11.0%. Rental rates ended the second quarter at $23.66, an increase over the previous quarter.
    • Market Overview In the first three months of 2007, 49 office sales transactions with a total volume of $1,360,564,976. The price per square foot averaged $230.30. 2007 Cap rates averaging 7.57%
    • Tenant Profiles  PAPYRUS  COMMONWEALTH OF MASSACHUSETTS  SQUARE FEET: 900 SF  DIVISION OF CAPITAL ASSET MANAGEMENT  LED: July 2010  SQUARE FEET: 10,047 SF  LED: May 2010  FILENE FEDERAL CREDIT UNION  SQUARE FEET: 2,229 SF  ADVENT SOFTWARE  LED: June 2011  SQUARE FEET: 8,061 SF  LED: September 2010  FINAGLE A BAGEL  SQUARE FEET: 2,582 SF  LED: July 2011  HARTFORD STEAM BOILER INSPECTION AND INSURANCE CO.  SQUARE FEET: 8,061 SF  LED: January 2016  RASKY BAERLEIN  SQUARE FEET: 11,425 SF  LED: December 2008
    • Assumptions* •Cost Price $15,000,000 ($177/sf) •$5,000,000 Equity, WACC @ 10 % •$10,000,000 Debt @ 6% for 30 Yrs •Debt Balance of $8,332,764 @ Year 10 •$32 $/SFT •Used broker basic assumptions from Year 1 (Occupancy 90%) •Revenue growth rate of 3% •Expenses as given – Incl Cleaning, repairs & maintenance, utilities, insurance, administrative, management fees •Depreciation only $150,000 per annum (1%) •But Tennant improvements averaged at $304,424 per annum (2%) •PV of Cash flows $6,282,708 •NPV = $1,282,708, IRR 13% * See Spreadsheet
    • Monte Carlo Simulation
    • Questions ?