Phoenix Partners, LLC
Broadway Center
David Hansen (Development)
Amy Merritt (Finance)
Thacher Tiffany (Planning)
Yew Chin Tan (Legal)
Phoenix Partners, LLC
Team Objectives
o Create financially viable retail development
o Improve retail shopping options for residents in
underserved area
o Understand the New Market Tax Credits program
Development Team
Broadway Center
BROADWAY
A grocery-anchored
neighborhood shopping center
Site Overview
Market Study
Design and Program
New Market Tax Credits
Finance
Development Team
Site Overview
30 Miles North of Boston
Location & Context
Outside of Historic Downtown Lawrence
Location & Context
Site
Streets
Context
Views from the site
Location & Context
Malden Mills Facility
Location & Context
Zoning
% Land Area per City
Lawrence
Methuen
15%
85%
Permissible as of right
No*
No
Timeline to obtain permits
12 mos.
9-12 mos.
Special permit required
No
Yes
Site Plan Review
Yes
Yes
Public Approval
No
Yes
Parking Req’d
3.3 / 1,000
4.0 / 1,000 +
*overlay district under development
Site Analysis: Zoning
Market Study
Primary Trade Area
Market Analysis
Trade Area Profile
o
o
o
o
o
12,500 Households
70% Latino
25% Single Mother Families
$28,500 Median Household Income
13,200 Average Daily Traffic
What this means . . .
o
o
Center of Latino business sector
Neighborhood based on geography and relationships
Market Analysis
Grocery Stores
Grocery Stores
Super Stop & Shop (2.5miles)
Market Basket (2.5miles)
DeMoula’s (1.8miles)
Market Basket (1.3miles)
Grocery Store
One mile
Grocery Store Absorption
CAPTURE RATE (Traffic-Based)
Trade Area Sales
Grocery Store Sales
Capture Rate
34,000,000
89,180,000
38%
CAPTURE RATE (Reilly Factor-based)
Market Basket (on Pleasant Valley)
Super Stop & Shop
Market Basket (on Essex)
De Moula's (on Haverhill)
Average
Capture Rate
Reilly
(Reilly Factor
Miles to
Distance
/ Actual)
Competitor Factor
2.5
1.3
54%
2.5
1.4
55%
1.3
0.6
49%
1.8
1
55%
2
1.1
53%
Grocery Store Absorption
CAPTURE RATE ANALYSIS
Total Food Spent at Home
Capture Rate
Estimate Store Sales
Current Store Average
Traffic Based Reilly Factor
71,952,000
50,894,000
38%
53%
27,432,000
27,135,000
22,295,000
National Chain Pharmacies
CVS (0.6miles)
Walgreen's (1mile)
Conlin’s (0.7miles)
CVS (0.8miles)
Walgreen’s (0.6miles)
Brooks (1.8miles)
Pharmacy
0.6 Miles
Pharmacy Absorption
REILLY DISTANCE FACTOR
CVS
CVS, Walgreens (on Broadway)
Conlin's, Walgreen's (on Jackson)
Brooks (on Haverhill)
Average
Reilly
Miles to
Distance
Competitor Factor
0.6
0.3
0.8
0.4
1.5
0.8
1.8
1
1.2
0.6
CAPTURE RATE (Household Share)
HH in Reilly Trade Area
HH in Traffic-based Area
Capture Rate
3,444
12,509
28%
Pharmacy Absorption
CAPTURE RATE ANALYSIS
Total Pharmacy Sales
Capture Rate
Estimate Store Sales
25,620,000
28%
7,054,000
Current Store Average
4,270,000
Design and Program
Center Alternatives
Land Residual
Base case
2nd Story
3 Pads
Hybrid
3rd
4th
1st
2nd
Site Planning
Inline
22,760 sf
40’
\
BROADWAY
Anchor
45,000 sf
Pharmacy
13,440 sf
Site Plan
Project Timeline
Months
0
6
Due Dil / Negotiations
Permiting / Planning
Sitework
Construction
Leaseup
12
18
24
30
4
12
6
12
12
36
New Market Tax Credit
New Markets Tax Credit
What is the NMTC: Federal tax credit allocated
annually to qualifying CDEs
Goal of NMTC: Encourage investment in low
income communities
Financial Terms: Credit equal to 39% of equity
investment, received over 7-year period
Massachusetts Housing Investment Corp
o
o
o
MIHC was allocated $169 million in NMTC
credits in 2006
Leverage tax credit equity with debt in order
to fund economic development projects
Provide a subordinate loan at 1%
NMTC Structure
Lender
Investor
MHIC
debt
CDFI Fund (US Treasury)
credits
equity
NMTC Fund I
equity
CDE
subordinate loan
Phoenix Properties LLC
Project Finance
NMTC Structure
Lender
Investor
MHIC
$
$ and credits
NMTC Fund I
$ and credits
CDFI Fund (US Treasury)
CDE
$
Phoenix Properties LLC
Project Finance
NMTC Structure
Lender
Investor
MHIC
debt
CDFI Fund (US Treasury)
credits
equity
NMTC Fund I
equity
CDE
subordinate loan
Investor
equity
Phoenix Properties LLC
Project Finance
Future of the NMTC
o
o
o
o
$15 billion between 2002 and 2007
2006 and 2007’s authorization will each equal
$3.5 billion
Applications for 2007 funding are due in
September of 2006
Congressional reauthorization in 2008 is likely
Project Finance
Finance
Land Price
o
Land residual analysis based on alternatives
Up to $1.6 million
o
Brokers
$1 to 5 million
o
Lawrence Community Works
$1.5 million
o
Developers
“not much”
RESULT: $1.3 million
Project Finance
Development Cost
Cost Summary
Total Cost Cost PSF
Land Cost
Hard Cost
Soft Cost
Developer Fee
Loan Guarantee Fee
Construction Loan Interest
NMTC Loan Interest
Total Development Cost
1,333,000
10,869,845
894,656
326,095
147,045
594,345
46,963
14,211,950
16
134
11
4
2
7
1
175
Project Finance
Retail Rents
Rental Rates Summary
Anchor Rent
Inline Rent
Pharmacy Rent
TOTAL GROSS ANNUAL RENT
Rent PSF
Annual Total
9
12
24
$
405,000
273,120
322,560
1,000,680
Project Finance
Capital Structure
Capital Structure
NMTC Loan
Construction Loan
Permanent Loan (25 Year Amort.)
Equity - Partner (90%)
Equity - Developer (10%)
Total
2,985,541
7,870,972
7,870,972
2,442,715
271,413
% of Total
Rate
22.0%
58.0%
58.0%
18.0%
2.0%
1.0%
7.0%
7.5%
N/A
N/A
Project Finance
Assumptions
DCF Analysis Assumptions
Grocery vacancy
Pharmacy vacancy
Inline vacancy
Inline lease term
Inline renewal prob.
5%
5%
10%
5 years
67%
6 months vacancy if no renewal, All leases NNN
Operating Expenses
Capital Expenditures
Cap rate for reversion event
Annual rent growth - Anchor
Annual rent growth - Inline
Annual expense growth
(5.90) psf
(0.30) psf
7.75%
1.0%
3.0%
2.5%
Sources: Eastern Development, Linear Retail, Commercial Real Estate
Listing Service, Urban Land Institute, Meredith and Grew, COSTAR,
Black’s Guide, LoopNet
Project Finance
Financial Results
Summary Financial Results
Project Level IRR
Equity IRR
Year 1 stabilized NOI
Yr 1 NOI Yield-to-Cost
Yr 1 DS Coverage Ratio
6.1%
7.9%
906,322
6.4%
1.25
Project Finance
Effect of Reduced Land Price
Sensitivity Analysis
Land Price
1,333,000
1,000,000
750,000
500,000
250,000
Equity IRR
7.9%
9.0%
9.9%
10.7%
11.6%
Sensitivity Analysis
Year 1 Inline
Retail Rental Rate
12
14
16
18
IRR to Equity
Investors
7.9%
10.0%
11.9%
13.6%
Project Finance
1,000,000
750,000
500,000
250,000
9.0%
9.9%
10.7%
11.6%
Effect of Higher Inline Rents
Sensitivity Analysis
Year 1 Inline
Retail Rental Rate
12
14
16
18
IRR to Equity
Investors
7.9%
10.0%
11.9%
13.6%
Project Finance
CONCLUSION
Project Finance
o
o
o
o
Proposal benefits from large vacant parcel
Site plan fits within urban context
Capital structure includes application of NMTC
Tenant mix addresses unmet demand
However…
o Insufficient returns to attract private capital
Broadway Center
Broadway Center
Construction Budget
Land Acquisition
Site Work and Landscaping
Anchor Cost
Inline Cost
Pharmacy Cost
Tenant Improvments
Hard Contingency
Total Cost
Cost PSF
1,333,000
6
962,500
4,500,000
2,503,600
1,612,800
812,000
478,945
12
100
110
120
10
5.9
Construction Mgmt
Architectural
Engineering
Legal
Entitlements & Permitting
Leasing Commissions
Construction Loan Fees
Permanent Loan Fees
Soft Contingency
32,256
150,000
50,000
100,000
162,400
100,000
100,000
100,000
100,000
0.4
1.8
0.6
1.2
2.0
1.2
1.2
1.2
1.2
Developer Fee
Loan Guarantee Fee
Construction Loan Interest
NMTC Loan Interest
326,095
147,045
598,907
46,963
4.0
1.8
7.4
0.6
14,216,512
175
Total Costs
Project Finance
BROADWAY CENTER
DCF Analysis
Construction Construction
Yr 1
Yr 2
Leaseup
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
LTH Year
Yr 3
1
2
3
4
5
6
7
8
9
10
DEVPT COSTS
Land Cost
Hard Cost
Soft Cost
(1,333,000)
(417,506)
(9,782,861)
(1,086,985)
(318,100)
(159,050)
(32,610)
Developer Fee
-
(293,486)
Loan Guarantee Fee
-
(147,045)
TOTAL COSTS
(1,750,506)
-
(10,541,491)
(1,278,644)
PGI
Grocery Anchor
636,975
636,975
647,128
657,477
668,027
678,782
689,746
700,924
712,320
723,941
735,790
Pharmacy Pad
231,101
381,763
386,711
391,736
396,841
402,026
407,293
412,645
418,082
423,606
429,219
Inline Retail
237,558
366,664
377,059
387,752
398,749
410,061
421,696
433,663
445,972
458,633
471,656
1,105,633
1,385,402
1,410,898
1,436,965
1,463,617
1,490,869
1,518,735
1,547,231
1,576,374
1,606,180
1,636,664
TOTAL PGI
-
Op Ex + Taxes
NOI
(1,750,506)
Less Cap Ex
PBTCF
(10,541,491)
-
(1,750,506)
Reversion Event
(10,541,491)
-
(479,080)
(479,080)
(491,057)
(503,333)
(515,917)
(528,815)
(542,035)
(555,586)
(569,476)
(652,091)
906,322
919,841
933,632
947,700
962,054
976,700
991,646
(24,360)
(24,360)
(24,969)
(25,593)
(26,233)
(26,889)
(27,561)
(28,250)
(28,956)
(29,680)
(676,451)
881,962
894,872
908,038
921,467
935,165
949,139
963,395
977,942
992,787
1,006,899
(583,712)
1,022,467
-
(598,305)
1,038,359
(30,422)
1,007,937
13,205,156
Const. Pd Interest
NMTC Loan Interest
-
(17,219)
(29,744)
-
-
-
-
-
-
-
-
-
-
Construction Loan Interest
-
(78,052)
(520,855)
-
-
-
-
-
-
-
-
-
-
Stabilized Pd. Interest
Less Debt Service (PERM)
(697,989)
(697,989)
(697,989)
(697,989)
(697,989)
(697,989)
(697,989)
(697,989)
(697,989)
Loan Take Out (PERM)
Less Debt Service (NMTC)
(29,855)
(29,855)
(29,855)
(29,855)
(29,855)
(29,855)
(29,855)
(29,855)
(29,855)
Loan Take Out (NMTC)
(29,855)
(2,985,541)
EBTCF
(1,750,506)
(10,636,762)
Net CF to Equity
(1,750,506)
(963,622)
IRR to Equity
(697,989)
(6,347,804)
(1,227,050)
-
154,117
167,027
180,194
193,622
207,320
221,294
235,551
250,097
264,942
4,151,903
110,440
167,027
180,194
193,622
207,320
221,294
235,551
250,097
264,942
4,151,903
7.9%
Project Finance