Olde Town Rental Market Update

 

 

 Hi, Today we are talking about a rental market update for the Old Town neighborhood.

 

Overall, in Old Town, we see rental rate rising.  We see young professionals increasingly being tenants in the Old Town neighborhood. They want to be close to downtown work. We’re seeing a trend that buyers and tenants tend to be overwhelmingly young and female. Tend to be young professionals.  And we’re also seeing more families with children moving into the neighborhood.  

In the video you’ll see a diagram of the rent rate curves.  The curve can help you visualize rental rates as a function of size, so you  can deduce that if you have 500 SF apartment, on average your guessing about 80 cents a foot.

The next chart is a diagram of rent per SF against average score–we gave each unit a ranking from one to five for condition and location.  And so we averages those two numbers together to give us and average score and of course, you can see here that there is a correlation between location and the rental rate.   Now, it’s not as tight as you would expect. so there are some people that are leasing units that are not quite that nice or not in a great location and their still getting $1.05 a square foot.

You know, so I think would tell you if it’s not a perfect market in Old Town and that there’s a lot of demand and sometimes people are making due with units that aren’t quite that nice.

The overall trend of the rental rates is rising, so here you see that over the past four years the rental rates have gone from an average of 80 cents a square foot to about 87 cents a square foot. So your seeing slow and steady increase in the rental rate.

We also have a shown the changes in the rent curves over time.    You see a for a 500 square foot apartment it would give you about $1.10 and then these are the two curves for 2019 and 2020. So you see pretty evenly spread here. We actually removed a few rentals form 401 Broad, listened to their legacy, rents, they actually brought the curve down so when you remove those outliers, the curve actually fits pretty steadily in there.

So, that is our Old Town rental market report. Overall, a great trend, we are seeing a lot of good things happening in the neighborhood.

We would love to hear from you. What are you seeing Downtown?  What are you experiencing with rental rates? Please like and share, comment below, subscribe. We’d love to hear from you and thanks for watching, and have a great day.

 

The Four Primary Uses of Sale-Leasebacks

 

Today we’ll be discussing the four primary uses of sale leasebacks: Financing, Improved Returns, Balance Sheet Improvements, and Exit/Repositioning.  

 

The Four Primary Uses for Sale-Leasebacks

  1. Financing: Allows for off-balance sheet financing (100% of equity can be made available for investment, as opposed to 75% with traditional financing) and at a lower cost
  2. Improved Returns: Firms may earn a higher return on their primary business rather than in real estate, so they consider moving capital to principal business to expand operations
  3. Balance Sheet Improvements: Tool for improving the balance sheet which can be important for exit planning and larger corporations
  4. Exit/Repositioning: When a firm determines they want to exit a given market/location, they can execute SLB to cash out of a given asset in advance, and then have 5-10 years to find new location.

Financing

Sale-leasebacks are a popular means for companies to fuel growth by moving capital out of real estate and into their principal business.  Often, releasing capital in real estate is more affordable and has better terms than bank financing.  With bank financing, you may only be able to release 75-80% of the equity in your real estate, and that loan will likely come with a 3-year balloon payment.  And often the appraised value of the building is the value of the vacant building.  With a Sale-leaseback, a business owner can tap into 100% of the equity in the real estate, with no balloon payment, and often the value of the NNN lease to an investor is higher than the appraised value of the empty building (depending on the owner’s creditworthiness and balance sheet).  Also, a risk of bank financing is that if the appraised value falls below the agreed-upon LTV, the loan is in default and immediately called (think 2008).  The sale-leaseback puts the market risk on the new owner.

Improved Returns

If the returns from a company’s principal business are higher than the returns on the real estate, it often makes sense to move equity out of real estate and invest it in the company’s core business.  The goal is always to maximize return.  For example, if the business is able to gain a 20% return from day-to-day operations, and the ownership of the real estate where the business resides is only netting an 8% return, returns would increase if the business could divest of the real estate to allow for greater investment in the core business.  Through the signing of a long-term lease, the real estate can be sold, the business remains in operation in its current location, and operations could conceivably be expanded with the opening of a new location or other operational expansion. 

Balance Sheet Improvements

As a seller looks to exit their business, it can become important to improve financial statements.  With this strategy, the seller replaces a fixed asset with a current asset. This increases the current ratio (current assets/current liabilities).  Sometimes referred to as the Working Capital Ratio, investors see this as an indication a company’s ability to service its short-term debt. 

Exit/Repositioning

A Sale-leaseback can be a useful tool for a business that knows it wants to move from a given location into another market or trade area in the future.  It can also be a means to exit from an overly specialized or obsolete building.  An example could be a prison or a hospital, or a retailer realizing that growth is moving in a given direction and determining that in 10 years it will move to follow growth, or that they will centralize their operations in a new building. 

 

What are your thoughts on SLBs?  Have you ever performed one?  As a growth plan, have you evaluated a SLB?  What are pros and cons in your opinion?  We’d love to hear from you.  Please comment below, share with friends, and thanks for reading! 

 

Economists project positive 2020 economic outlook, but with a few concerns

Overall there was good news for a room full of business leaders gathered at the Marriott Hotel in Downtown Augusta.  The 2020 forecast was hosted by the Terry College of Business at UGA, and presented by Dr. Ben Ayers and Cal Wray.  

Dr. Ayers outlined a number of economic development announcements from across the state, including the Union Agener and Acoustics & Insulation Techniques announcements which themselves will bring 245 jobs to the CSRA.  

Cal Wray, president of the Augusta Economic Development Authority, noted that Augusta has experienced 8.5% population growth since 2010, and unemployment sits at historic lows near 2.9%.  With Fort Gordon continuing to expand, Augusta’s future looks bright, even as nationally and internationally there are warnings signs of an economic slowdown.  
 
For an in-depth review, real the Amanda King’s article in the Augusta Chronicle.  

What are your thoughts?  What are you seeing in the local economy?  

New Apartments Coming to Downtown Augusta and implications to Rental Rates

 

Rendering of  54 unit mixed-use development ‘The Atticus’ planned for 10th at Ellis.

 

Damon Cline reported on Monday that Downtown Augusta will see one of the first downtown multifamily projects in decades at the corner of 10th and Ellis next year.  Known as “Connell’s Corner”, and long home to the local favorite “Sandwich City”, the property will soon be the home to a new high-end four-story apartment building. 

‘It will boast a covered and gated 57-space parking lot, ground floor retail/restaurant space, a rooftop patio and high-tech features such as keyless entry – the types of amenities that appeal to urban-minded young professionals migrating to the downtown area.’

 

The story was broken by Damon Cline, who also shared some statistics and details about the overall rental market in Augusta.  Overall, apartment rents are rising quickly, and what was once considered a “Class-A”  apartment renting at $1.15-$1.25/SF/Month, has been eclipsed by new super-luxury apartments renting at $1.30-$1.40/SF/Month.  This new class of apartments come equipped with similar finishes found in luxury homes, including granite and high-end appliances.

 

We recently discussed charting rent curves and what they tell us about rent rates and forecasting rent rates.  I think this is a great case study.  Here’s what the rent curves for downtown apartments looks like:

You can download the spreadsheet here.   These are asking rates at the major downtown apartment complexes vs. downtown lofts and upstairs apartments.  You can see a big difference between the two.  I think what we’re seeing is that the curves are moving out–driven by a higher demand for downtown apartments like Canalside and Ironwood.  My guess is that the Atticus could probably plot a new curve–maybe ask $2.15 for their smallest units, and maybe $1.50-$1.65 for their larger ones.  If they’re successful with this project, I think we’ll start to see redevelopment of buildings that have up to now been impossible to redevelop with existing rental rates.  

 

What are your thoughts?  What are your observations about Augusta’s rental market?  Do you think Downtown will continue to grow and develop?  

Development Authority negotiates Greenjackets Stadium Lease

 

The former home of the Augusta Greenjackets is getting a second life. Last week Augusta leaders agreed on a deal to bring more entertainment to the Augusta area. A 10-year master lease agreement to bring big acts and events to the Lake Olmstead Stadium will have us seeing the area around Lake Olmstead transformed starting this April. The Augusta Commission voted and approved for the Augusta Development Authority’s “stadium master lease” of the facilities. C4 Live, the subtenant, will be spending hundreds of thousands of dollars to make upgrades to the structure and in addition to Masters Week, we can expect other entertainment events through out the year. This is great news for Augusta and this piece of land getting a second life!

 

What’s a master lease, you may ask?  Here’s Bigger Pocket’s summary, but in short, it’s when an owner leases a space to a tenant who then has the right to sublease to another tenant.  The city of Augusta will lease to the EDA, who in turn will lease to C4 Live.  This is generally good when the landlord trusts the master tenant, but has no relationship to the subtenant–the master tenant is guaranteeing the performance of the lease.  

 

 

https://www.augustachronicle.com/news/20200108/entertainment-company-approved-to-bring-events-to-olmstead-stadium

 

https://www.wrdw.com/content/news/Augusta-leaders-strike-10-year-deal-for-acts-at-Lake-Olmstead-Stadium-for-Masters-Week-566840601.html

Using Rent Curves to Study Multifamily Rental Rates

This is Jonathan Aceves with Meybohm Commercial Real Estate, advising business leaders and helping them make wise real estate decisions.  Today we’re going to be discussing Multifamily Rent Curves.  

 

How does one set out to study multifamily rental rates?  We do this by building a rent curve.  Let’s say you want to study the rental rates for housing in Martinez, GA.  We would do a survey of rental rates at apartment complexes in the area, and plot them on a graph.  The graph would start out looking like this:

Then we would separate them by class.  Class is a ranking system given to multifamily properties by investors, generally A, B, C, and D.  A properties are generally newer, amenitized, and really nice.  B properties are usually good, but maybe a little older, maybe not the same level of amenities.  C properties are in not-so-great areas, in fair condition, usually schools aren’t so good.  D properties are in bad condition and really rough areas, these are the kind that you wouldn’t go to at night.  Once you’ve broken them apart by class, you draw a curve over them.  You would end up with something like this:

 

It is interesting to note the steepness of the curve, and the distance between the different curves.  Another thing to note is that market changes shift the curves.  This is what we see in rapidly gentrifying areas—the entire curve moves out.

 

So how do you use the rent curve?  Well this helps investors identify opportunities for repositioning.  It also helps you identify management problems.  If I see a complex with below-market rents, I try to figure out why.  Is it a problem that an investor can fix?  

 

Thanks for reading!  Please like and share with those you think might benefit from this.  We’d love to hear from you! What are your thoughts about rental rates? 

 

 

GA Power gives $50K to DDA for Downtown Storefront Improvements

Georgia Power is starting off 2020 with a pledge of $50,000 toward storefront improvements in downtown Augusta.  This is more than triple what they have donated in the past. For the previous two years they have donated $15,000 each year which was used to create a  facade matching-grant program. It has helped with projects but it has gone quickly.

 

The company’s regional external affairs manager, Stephen King, presented the Augusta Downtown Development Authority with the symbolic check.  He said, “It doesn’t come with any stipulations other than for the growth and development of downtown.” The program developed is a matching-grant program that offers up to $5,000 to downtown business owners who invest an equal amount in exterior improvements to their spaces.

 

For more details see Augusta Chronicle Article: https://www.augustachronicle.com/business/20200109/georgia-power-donates-50000-to-downtown-improvements?template=ampart

 

Contact the DDA for more information on how to apply for the grant: 

http://www.myaugustadowntown.com/

Depot developer Bloc Global threatens to walk from Downtown deal

Today the Augusta Chronicle reported that it looks like the proposed $94 million dollar Augusta Riverfront Depot project is teetering on the edge of collapse.  Bloc Global, the developer, has asked for the return of their $50,000 held in escrow, or they will terminate from the deal.  

 

In 2016, the commission authorized the city DDA to market a 6.3-acre riverfront parcel at the corner of Reynolds and Sixth streets and we later learned of a pretty major conflict over the employee parking lot at the site that was provided for Unisys Corp the year before. 

 

What are your thoughts on this project?  What do you think will be the result?  

 

Read the full story:

https://www.augustachronicle.com/news/20200107/depot-developers-threaten-to-withdraw-from-deal

 

Downtown Residential Market Report

https://www.youtube.com/watch?v=CGggUa-lkUw&feature=youtu.be

Today we’re going to cover one of our pet subjects, the Downtown Augusta residential market, specifically Olde Town.  Click here to download Olde Town Q4 2019 Market Report

 

What’s going on:  Prices are rising–homes bought at retail (livable, decent condition) have risen from about $63/SF on average to just under $80/SF on average over four years–that’s about a 26% increase.  As a whole, the average price has risen from about $30/SF to about $57/SF–almost double–over the past four years.  

 

Part of what’s happening is that there are lots of abandoned and derelict homes that have been purchased, along with the rise of young professionals moving downtown.  The average buyer in Olde Town today is a young, single, professional female.  She is educated, trendy, and wants to be connected to the neighborhood and the downtown.  

 

In 2010 when I bought my home in Olde Town, things were much different.  The neighborhood was ‘busier’–more foot traffic, and there was a significantly higher percentage of section 8 housing in the neighborhood.  Over the past ten years families have moved downtown–many connected to First Presbyterian Church and Christ Community Health Services (a non-profit heath center located in the middle of Olde Town).  The rents started rising, investors started buying and renovating the homes, and soon things started changing.  

 

In the past two years is when I’d say I’ve seen the most change.  The main section 8 property in our neighborhood, Olde Town Apartments, had their tax credit expire and has been renting and selling their properties at market rate (primarily to young professionals).  Many of the derelict properties on the southern edge of the neighborhood have been demolished, and plans are underway for new homes to be built.  

 

My prediction is that the trends we see will continue, and that home values will continue to climb.  I think that if the trend continues, in the next two years prices/SF for homes sold at retail will surpass $100/ft, at which time we will hit a tipping point which will open the neighborhood to new construction, and we will see many of the functionally obsolete homes demolished and new homes built.  All this is great for our city, and for the greater urban community in Augusta, GA.  

 

What are your thoughts?  Where do you see the market downtown headed?

Downtown Rental Market Update

 

Today we’re going to be discussing the Olde Town Rental market update. Click here to download the Rental Study.   

 

Overall, we’ve seen the rental rates in Olde Town (Downtown Augusta’s primary residential neighborhood) climb from an average of $.67/SF to just under a dollar per SF over the past four years.  That’s a 32% increase, about 8% per year. What’s going on?

 

Well, as we’ve already mentioned, Cyber and Medical young professionals are choosing to live downtown.  That’s driving up rents and housing prices.  Also, investors are renovating properties, and so we are seeing more available rental properties that are in in decent condition.  

 

A decent case study is 107/105 Fourth Street.  We recently helped a buyer from Virginia acquire those apartments.  The previous owner had owned them for over 15 years, and they were in pretty rough condition with low rents. The new owner is going to make an investment into renovating the units, and with the help of professional property management, they will lease them at market rates.  The location of the property is great–the condition was terrible.  Now that complex (surrounded by young, professional homeowners) will probably target young professional or medical tenants, and we’ll see it on our rent study next year, my guess is on the higher end of our graphs.  

 

You’ll also see in the graph a strong correlation between the “Score” and the price per foot.  Our scoring system is a somewhat arbitrary numbering of properties by both location and condition from 1 to 5, and then averaging these two numbers together.  Thus, a property with location of 4 and condition of 5 scores a 4.5 in this measure.  The number again is somewhat arbitrary, but the correlation is quite strong.  So I would assign a property in rough condition and poor location an estimated rental rate of .65/ft, while a property with a good location and great condition an estimated rental rate of .95/ft.  Note that this measure doesn’t take into consideration size, which the first graph makes clear is highly correlated with the rental rate.  

 

I think this is great news for our Downtown rental market.  Augusta is changing, and I believe that the rising tide will lift all ships.  

 

What are your thoughts?  What has your experience been in the rental market?