Final Conclusion - Regular Aprartments

After putting all the numbers together, and doing all the research, we discovered a number of problems to feasibility:
* 1,500 sq. ft. is the smallest unit size allowed
* city requires that only 2 unrelated adults live in a unit; this density is too low for the project to remain viable
* students typically only rent for 9 months of the year further decreasing income generated
* after discussion with Kirk, the director of development from Highland Park, they declined any interest in forming a Municipal Management District as, "We do not help private developers" was their position. We do not believe they fully understand how a municipal management district would work in their favor.
* another approach we considered was the EB5 visa for foreign investment funds, which did not prove to be viable.

In summary, for this project to work, the owner would have to contribute all of the land to equity, and we would have to charge very high rental rates to break even. This coupled with the 965,000 equity requirement leads us to believe that regular apartments would be more suitable for this project. An entirely different site that is more favorable for student housing should be considered.

Loan Officer and Broker

Over the last week I have been in contact with a loan officer from JP Morgan in the multi-family department, and a broker. The loan officer gave me numbers for interest rates, LTV, loan terms, and other requirements. He stated that as new or first-time investors it would be highly likely that personal guarantees would be required along with a pledge of liquid assets such as stocks, bonds, or a trust fund. Due to low interest rates, they are pushing a variable 1.5% loan at the moment. Traditional lending would be about 5-7% for 15-25 years. Without personal guarantees or pledges, they would require up to a 45% down. Quite the entry barrier!
With the brokers help, I investigated several other properties in the University Park area as well as looked at some comparable properties. Unfortunately, unless you are a serious buyer, many owners will not give out many interesting and pertinent details essential to evaluating comparable properties.

Municipal Management District

Tonight we worked on the numbers for the pro forma. We have some creative financing ideas we would like to implement, but are not sure if the city of Highland Park would be willing to participate. We would like to implement a Municipal management District. The city would create a special tax district that includes only our property. This allows the creation of a new land tax, say 1% of property value per year. It typically has a time horizon, for example 20 years, after which the tax district is abolished. The income stream from this new tax is then sold to parties seeking long term investments. The net effect is that the city receives a new development it could not have achieved without finance, the bond holders receive a long term income stream similar to a municipal bond and the developer receives some finance. We have heard about some developments in the city of Dallas creating this type of Municipal Tax District for development purposes. Note: http://www.dallas-ecodev.org/incentives/municipal-management-district/. We checked in with Kirk, the director of development in the City of Highland Park, and he had not heard of this type of tax district and seemed to get the idea that we were interested in debt financing. If we were to pursue this project we would need to discuss this in further depth, as the project may not be viable without this extra creative financing option.

Land Development Opportunity off Katy Trail

We find a piece of land in a perfect spot just waiting for development off of highly desirable Katy Trail - no remodel needed - a breath of fresh air. A cursory look at the numbers makes it look like this could be a viable option - and great for students too.

Property on Mc Commas

We went to look at a 22 unit property advertised as a "redevelopment opportunity." Boy, was it ever! A dump of a place needing renovations galore- a dream "slum lord" opportunity is what I'd call it. His asking price is way too high for what would even cover debt service, and DCAD lists it as about half of what the owner is asking. A cursory look at the numbers reveals that the property could be a viable option IF we could buy at about half the price and just hold it as it is, only doing necessary repairs as they come up. Fortunately, the tenants seem stable - only 1 vacancy because rents are so low, and of the three buildings, one of them is mostly made up of older people who have been living there for a long time. Once the market for construction loans back, it could be a good redevelopment opportunity. Directly across the street are some beautiful "French Riviera" type condos that have been built, increasing the likelihood of something positive happening with the units on the other side in the future. The land is worth about 3 times what the buildings themselves are worth on DCAD.

Looking for Multi-Family Project close to Students

Tonight I focused on looking for multi-family housing for sale in the SMU vicinity. The "Signature Pointe" property on Lovers and Matilda would be an incredible spot (very close to SMU and near Central Market, banks, Office Depot, bookstore etc.) that's been through the economic down turn - got taken back by a bank from an owner who had planned a new high density "multi-use" zoning, which the neighboring condo owners disapproved of. Compass Bank then sold the property to Jonathan Perlman, a senior housing developer. I can not see senior housing going over well there - seniors walking to the DART rail?? - nonethless, that's what's in the works. So, on to some other property options: Mc Commas and Henderson Ave. Two multi- unit apartment blocks are for sale on Mc Commas. It's perfect for students who love the lower Greenville and M Streets area, but don't want to pay the high rents of the houses in the area. (Rents going around $600-$800.) And - a 4% cap rate seems hard to beat. I'm going to get more info, and research the pro forma numbers some more and see which property comes out on top.

Meeting with a Developer - which Schools need more Housing?

Today we met with the developer of the prestigious Mockingbird Station. We wanted to get a feel for the student housing market, and pick his brain regarding contacts, and any advice he could give. It was encouraging to hear him say that student housing was definitely a great place to be in, along with senior housing. He said that in those two sectors the market was coming to developers as opposed to developers having to chase the markets. He gave us the name of the developer of the new TCU student housing on Barry St., which could be a great contact. He suggested that Waco's Baylor, Fort Worth, or University of Texas Denton would be good places to look for student housing opportunities. He gave us a brief run down of what it would take to launch a student housing development: 1. Obtain the land first. 2. Do a feasibility study and identify potential upside. 3. Get the drawings done. 4. Get financing 5. Construction!

Obviously, it would be ideal to have some sort of agreement in place with the university for the students.