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Prof. Shiawee Yang FIN3920 Real Estate Investments and Analysis Summer 2002 July 22, 2002 Grove Hall Gateway Project Group 6 Equity Investment Analysis for Housing Prepared by: Dave Bate Max Becker Steve Lynn Assumptions Development hard costs were calculated at $140 per square foot based on case plus 10% developer fee. We consulted with a general contractor/developer who said that the cost could go as high as $145 - $150 per square foot plus 10% development fee for the contractor. The space we used for our calculations were provided by the development group’s findings with Fred Fairfield. Development soft costs were calculated using the case numbers prorated to fit the scope of our building. The case provided soft costs for a 150,000 square foot project while our project is for only 62,250 square feet for the four-story building 148,320 for the tower. We took the soft costs from the previous case prorated the values provided in the case. Soft costs amount to 11.89 percent of the total project costs for the four-story building and 11.08 percent for the tower. Our contractor reference concurred that our proportion of soft costs was generally accurate. Affordable housing rents were calculated at 60 percent of the market rents. The proportion of two-bedroom units to one-bedroom units for the market rate apartments is approximately 7:3. The proportion of the two-bedroom units to one-bedroom units for the affordable rent apartments is 1:1. The total number of market units is 46 for the four-story building and 134 for the tower. . The total number of market units is 20 for the four-story building and 53 for the tower. Parking facilities sized at one spot per apartment, and costs assumed at the rates provided in the case at $15,000 per spot. Our contractor consultant concurred that this per-spot cost was reasonable. Loan to value ratio to be assumed at 0.90. We are assuming the owners to make a 10 percent down payment. Mortgage terms assumed at 30 years. Finance rate for mortgage assumed to be 5.875 percent. We used this figure because we assumed the owners would take advantage of the financing benefits available to affordable housing properties. Cost of Capital in the net present value calculation at 12 percent. We consulted with a general contractor who takes an initial developer's fee of 10 percent of the complete project costs, adds that the to the total and then assumes 12 percent in the NPV calculation. Depreciation of the residential apartments assumed straight-line method over 27.5 years per the Alison Green apartment property of the Angus Cartwright Case. Insurance costs for general liability are estimated at 0.5% of total development costs of the project. Property taxes are estimated at $10.50 per $1,000 of assessed value. Assessed value is simply stated as the total development costs of the project. Management fees for the continuous residential management of the building is valued at $30.00 per apartment unit per month. This fee was determined from research through the Department Management Services Company. This fee covers activities including marketing, accounting, general administrative functions, and 24-hour emergency services. We broke down the benefits covered by the management fees and prorated them among each benefit shown in the cash flow analysis under maintenance and administrative. Electric utility costs are estimated per common areas including outside lighting as responsibility of landlord. The costs are $30.00 per 1,000 s.f. of unleaseable space per month. Having 15,000 unleaseable square feet for the four-story building and 30,000 for the tower is sufficient for our cost estimate. We consulted with N-Star. We also consulted with an apartment complex developer. Gas utility costs would be incurred to provide heat to common areas during periods of cold weather. We used a formula of $25.00 per 1,000 square feet per month. We consulted with Keyspan for the basis of our calculation. However, based on the design of the layout of the common areas, it is possible for the common areas to be heated by the radiant heat coming from tenant apartments. Water and sewer costs were sourced from the Boston Water and Sewer Commission. We don’t know the average family size to occupy the Grove Hall residential units. We assumed a low number of people per unit; in other words, about two adults or one adult and one to two children per unit. We assumed each apartment to consume an average 500 cubic feet of water per month through the year as a reasonable number. The calculations were prorated at half the cost rate of $24.77 per 1,000 cubic feet charges plus half the cost rate of $34.09 per 1,000 cubic feet charges from the Commission for water and sewer. Our model is set-up to be to link calculations and numbers to all sheets affected. All figures given in the model in black are formula driven. All values in blue are our inputs.
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