Getting Beyond the Gateway Markets - Discovering Up-and-Coming Next Tier Markets Jeff Albee, SVN Pacific Bridge jeff.albee@svn.com Mark Bryant, JPI mark.bryant@jpi.com Mark Drumm, Stratford Land mdrumm@stratfordland.com Michael Richards, Cappello Global, LLC Mrichards@cappellocorp.com Moderated By: Dan Flanigan, POLSINELLI dflanigan@polsinelli.com
POLSINELLI S National Footprint
Getting Beyond Gateway Markets Discovering Up and Coming Secondary Markets Presented by: Mark Drumm, Stratford Land Moderated By: Dan Flanigan, Polsinelli
Defining the Markets First Tier/Gateway Markets Developed, established real estate market. Highly developed and the most expensive real estate. Second Tier In the process of developing their real estate markets. Up and coming with solid corporate commitments, but have not reached their peak. Real estate is usually, relatively inexpensive. Third Tier Have undeveloped, almost non-existent real estate markets. Real estate is cheap and there is an opportunity for growth based upon corporate commitments.
Liquidity and Risk First Tier/Gateway Markets Capital rich, lower CAP rates and higher prices. More liquid with higher institutional transaction volume with international capital. Highly competitive markets Second Tier More local and regional institutional capital, less competition, higher CAP rates and lower prices. Liquid markets, but lower transaction volume. Limited international capital investment. Third Tier Local driven investment markets with little unspecialized international or domestic institutional capital investment.
Forecasts by Moody s Analytics The Big Six
Defining the Big 6 Industries diversification through: expanding technology, finance and insurance, and entertainment; cyclical activity with distribution and shipping hubs/ports; or fiscal budget driven high government employment and defense contracting Extensive Infrastructure in: Multiple higher education establishments; Extensive, typically research oriented, medical systems; International air transportation; and Commuter train transportation systems Highly regulated business and real estate climate with more: Stringent environment rules and compliance standards; Higher efficiency standards and building codes; and Higher labor costs Overall, these markets have a: Higher cost of doing business; Higher taxes structure; Higher cost of living; and Low housing affordability Substantial entitlement and pension funding risks
Forecasts by Moody s Analytics The Next Six
Defining the Next 6 Industries diversification through: Corporate relocations; Growing technology, data services and telecommunications infrastructure; Professional business services including back office administration and sales force management; Lower government employment ratio; and Growing manufacturing base Infrastructure expanding but: Select few higher education establishments; Expanding medical systems; Large airport infrastructure, but with more limited international air linkage; and More juvenile commuter transportation networks Lightly regulated business and real estate climate with more: Cooperative environmental regulators; Fewer extraordinary efficiency standards and building codes; and Lower labor costs through right to work environments Overall, these markets have a: Lower cost of doing business; Lower taxes structure; Lower cost of living; and a Higher rate of housing affordability More limited entitlement and pension funding risks
Forecasts by Moody s Analytics The New Six
Migrating Patterns
Forecasts by Moody s Analytics Expanding Market Alternatives
Investment Potential Ranking 1. Dallas-Ft. Worth, Texas Diversified and Telecom 2. Austin, Texas Technology Related 3. Charlotte, North Carolina Financial 4. Seattle, Washington Technology and Aerospace 5. Atlanta, Georgia Diversified 6. Denver, Colorado - Technology 7. Nashville, Tennessee Diversified and Entertainment 8. San Francisco, California Technology 9. Portland, Oregon Technology 10. Los Angeles, California Entertainment and Tech PWC and Urban Land Institute s Emerging Trends in Real Estate 2016
Opportunities Mid-Cycle First Tier/Gateway Markets Cautious due to an over abundance of capital and competition driving prices higher as interest rates rise and growth remains tepid Second Tier Look for markets with expanding long-term growth potential and maturing real estate markets particularly where new development can be justifiable Third Tier Capital starved and most completion is local. Look for unique industry or real estate product opportunities.
Getting Beyond Gateways Markets Investment Opportunities In Secondary Markets Presented By: Jeff Albee, SVN Commercial Real Estate Advisors Moderated By: Dan Flanigan, Polsinelli
SECONDARY MARKETS SHOW ABOVE-AVERAGE JOB GROWTH Secondary markets have shown faster job growth rate than primary markets. Demand for office buildings is on the rise. Examples: Atlanta, Dallas, Nashville, Phoenix, Seattle.
Secondary markets with above-average growth in population and employment continue to attract investments in multi-family properties. INCREASED ROI IN SECONDARY MARKETS
DEVELOPMENTS IN SECONDARY MARKETS Inland cities in secondary markets outscored large cities like Los Angeles and Miami. Note: 15 would be a perfect score
By 2020, Millennials will comprise more than one of three adult Americans. It is estimated that by 2025 they will make up as much as 75 percent of the workforce. DEMOGRAPHICS AND REAL ESTATE
Getting Beyond Gateway Markets Dallas & Austin Presented By: Mark Bryant, JPI Moderated By: Dan Flanigan, Polsinelli
JPI Case Study: Jefferson Center Richardson, TX Asset Overview Set record for highest sales price per unit for a walk up community in DFW at time of sale JPI was able to provide 87% of the site as open space for the residents of the community, a number unmatched in the submarket The 30 acre site contains 12 units per acre Sold to Family Trust ~94% leased at a 5% cap rate Units 360 Start Date Sept-13 Sale Date Feb-16 Total Cost (per unit) $49.7M ($138.1k) Total Sales Price (per unit) $70.2M (4195.0k) Avg. Rent (PSF) $1,465 ($1.55) Leveraged IRR 38.0%
Getting Beyond Gateways Markets Cal-Neva & Biloxi, Miss. Presented by: Michael Richards, Capello Global, LCC Moderated by: Dan Flanigan, Polsinelli
Cal-Neva Lodge: Lake Tahoe, Nevada, USA
ADDRESS LOCATION 2 Stateline Road, Crystal Bay, Nevada 89402 (mailing), that incorporates 9939 White Cap Lane, Kings Beach, California 96143 Lakeview property with beach access on the North Shore of Lake Tahoe OPENING DATE As early as May 2018 NUMBER OF ROOMS BUILDING LAYOUT PARKING PARCEL NUMBERS ZONING LOT SIZE GROSS BUILDING AREA FOOD AND BEVERAGE MEETING SPACE SPA CASINO OTHER OUTLETS & ACTIVITIES FAIRWINDS ESTATE MANAGEMENT OWNERSHIP INTEREST LABOR Phase I: 191 hotel rooms, cabins and terrace rooms, and a Presidential Suite Phase II: 28 hotel-condominium units, providing 56 keys (rental pool) A ten-story, interior corridor tower with 178 rooms 5 historic individual cabins, 7 terrace suites & 1 Presidential Suite 28 two bedroom condominium units, that can be added to the rental pool as 56 keys 284 surface parking spaces Cal Neva: 123-031-01, 123-031-09, 123-044-06, 090-315-022-000, 090-305-015-000, 090-305-004-000 Fairwinds Estate: 090-321-004, 090-321-006-510, 090-321-006-520, 090-321-016, 090-321-017, 090-321-007 TC (Tourist Commercial) Cal Neva: 13.57 acres (591,018 square feet) Fairwinds Estate: 1.68 acres (73,600 square feet) 165,000 square feet (estimated) Historic Circle Bar, a specialty restaurant, the Casino Bar, a terrace-level family restaurant, the Boardroom Wine & Cellar, and an upscale deli-grocery 16,000 sq. ft. of flexible indoor and outdoor space Four treatment rooms, full-service spa 17,000 sq. ft. gaming floor The 4,500 sq. ft. Frank Sinatra Showroom, kids adventure center, outdoor pool and patio, retail boutique(s), state-of-the-art fitness facility, Adventure Concierge, Tunnel Tours Address: 9898 Lake Street, Kings Beach, CA 96143 Classic lakefront retreat built in 1937 and fully restored. The estate offers six private suites, sleeping up to 26 guests, a 1,500 sq. ft. wrap-around porch overlooking the lake, and a 250 ft. pier Unencumbered Fee Simple Non-Union
Sources and Uses Sources Senior Secured Debt $50,000,000 Preferred Equity 29,498,000 Condominium Presale Funds 13,447,000 Fairwinds Mortgage 4,250,000 Total Sources $97,195,000 Uses Creditor Claims $35,000,000 Completion of Hotel / Casino 30,000,000 Condominium Construction 18,695,000 Interest Reserve 5,000,000 Financing Costs & Fees 4,250,000 Fairwinds Mortgage 4,250,000 Total Uses $97,195,000 Construction Year 1 Year 2 Year 3 Year 4 Year 5 New Equity Return Investment $ (29,498,000) $ - $ - $ - $ - $ 29,498,000 Preferred Dividend - 2,359,840 2,359,840 2,359,840 2,359,840 2,359,840 Common Equity Distribution - 4,236,730 5,238,105 5,794,071 5,941,713 20,333,117 Total Cash Flow (29,498,000) 6,596,570 7,597,945 8,153,911 8,301,553 52,190,957 IRR 37% Note: IRR Assumes construction period of 10 months
Getting Beyond Gateways Markets Niche Markets Presented By: Dan Flanigan, Polsinelli STUDENT HOUSING https://ca-ventures.com/student-living/ SENIOR LIVING https://ca-ventures.com/senior-living/ DEBT FUNDS/CRE CLOs www.prime-finance.com CHARTER SCHOOLS http://www.eprkc.com/portfolio-overview/education/ http://turnerimpact.com/investment-models/education
POLSINELLI S National Footprint
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