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.