Executive Summary
Sassyk Real Estate Investment Consultants was approached by John Smith Developers on December 15, 2010, to submit a proposal for the express purpose of redeveloping a group of buildings in the West 7th St. Cultural District, Fort Worth, Texas. Sassyk has agreed on a "time is of the essence" contract to provide a proposal of recommendation(s) based on the following criteria:
1) Should Tax Credits be used?
2) What property type should this be developed into?
3) Should it be a mixed-use development?
4) Should a building from the group be demolished in order to create more parking to allow different
property uses on this site?
5) Should development be "mothballed", as in using exiting buildings as storage until market
improves?
Additional Notes:
1) Building 1 is not part of the John Smith Development partnership. The partnership holds title to
Buildings 2 and 3 only.
2) Subject project is centered around the possible redevelopment of Building 2.
John Smith has informed Sassyk that their decision point is January 1, 2011. John Smith Development Partners are at a break-even cash flow situation with building 2 becoming vacant and Building 3 fully leased. The partnership has a current end of year tax bill due on the property. In addition, the partnership consensus is a to take a 3 to 5 year wait-and-see approach, mostly due to the effects on the real estate market from the economic downturn in 2008-2009. Sassyk has agreed to furnish their proposal 24 hours before the decision point time line.
The following pre-development information was provided by John Smith Developers:
Site Information
Building 1 - 821-945 Foch Street
The building was purchased in 2001. When purchased, the building foot print was approximately 80,000 sq. ft. The building was redeveloped in 2002- 2003 and has a current foot print of 68,000 with 112 parking stalls on site. Prior to the economic downturn in 2008/2009, there were 12 tenants, which included a Tex/Mex Restaurant, yoga studio, art supply store and a vintage clothing boutique. Currently, the building is 60% leased with in place rents at $14.50/SF NNN. All spaces are approximately 4500 sq. ft and have been previously occupied, so retrofit costs are set at $5.00/SF.
Building2-1001-1059 Foch Street
The building was purchased in 2004. The building foot print is approximately 80,000 sq. ft. Currently, a metal fabricator has leased 100% of the building with an in place rent at $2.50/SF gross. The lease will run out on 12/31/10 and will not be renewed. Building 1 and 2 share the same type of construction: Cast-in-place concrete, dock high finish. Building 2 was built in 1948. Roof construction is flat and is problematic for storm water run-off and retention.
Building 3 - 1001-1059 Foch Street
The building was purchased in 2004 and redeveloped in 2004-2005. The building foot print is approximately 14,300 sq. ft. The building is currently fully leased with average in place rents of $14.50/SF NNN. Current tenants are a restaurant/bar and seven office suites.
Site Analysis
Our Site analysis is a combination of site inspections and current site research. During several site inspections, the following were noted:
1) Accessibility/Ease of Ingress/Egress - Parking during different times of the weekdays did not appear to be a problem. Building 2 and Building 3 share site parking with 42 striped parking stalls and and additional parking area at the east end of Building 2.
2) Traffic Flow - As expected, is heavier during the weekend period (considered Friday at 5:00 p.m. to Sunday at 9:00 p.m). Parking becomes a premium and problematic at times.
3) Pedestrian Flow - is light to moderate along Foch Street during the week and as expected, heavier during the weekend period. The surrounding area, the West 7th Street development/redevelopment has increased accelerated growth over the last several years, which is located adjacent to Foch Street.
4) Tenant Mix - Building 1 is a mixed use of retail with one restaurant. Building 3 is a mixed use retail and office, with a restaurant/bar and office suites.
5) Flood Issues - Due to the type of construction (dock high finish floor), finish floor is approximately 48" above center line of center of Foch Street. Flooding does not seem to be a concern. Site drainage appears to function properly. Storm water runoff has been addressed in the surrounding area due to new construction.
Regulatory/Market Analysis/Analytics
While the United States was feeling the effects of the economic downturn in 2008-2009, The State of Texas was in far better condition than the rest of the country. This is witnessed in the West 7th Street Development area where although hit by a decline in the real estate sector, building continued. The boom in this area began in 2007 and has stayed relatively strong, with the possible exception of The Montgomery Ward Plaza mixed-use area. Loft residence undersold, mostly due to the unstable real estate sector and asking prices that reflect higher income earners. First floor retail remained steady, with some businesses having to vacate due to market conditions. Overall, real estate recovery is strong in the 7th Street/Cultural District area where last quarter of 2010 sales of apartments and condos are "brisk". During 2010, 800 apartments and condos have been built. Currently, area retail is growing with a movie theater, restaurants, a gym and clothing boutiques.
Sassyk Real Estate Investment Consultants was approached by John Smith Developers on December 15, 2010, to submit a proposal for the express purpose of redeveloping a group of buildings in the West 7th St. Cultural District, Fort Worth, Texas. Sassyk has agreed on a "time is of the essence" contract to provide a proposal of recommendation(s) based on the following criteria:
1) Should Tax Credits be used?
2) What property type should this be developed into?
3) Should it be a mixed-use development?
4) Should a building from the group be demolished in order to create more parking to allow different
property uses on this site?
5) Should development be "mothballed", as in using exiting buildings as storage until market
improves?
Additional Notes:
1) Building 1 is not part of the John Smith Development partnership. The partnership holds title to
Buildings 2 and 3 only.
2) Subject project is centered around the possible redevelopment of Building 2.
John Smith has informed Sassyk that their decision point is January 1, 2011. John Smith Development Partners are at a break-even cash flow situation with building 2 becoming vacant and Building 3 fully leased. The partnership has a current end of year tax bill due on the property. In addition, the partnership consensus is a to take a 3 to 5 year wait-and-see approach, mostly due to the effects on the real estate market from the economic downturn in 2008-2009. Sassyk has agreed to furnish their proposal 24 hours before the decision point time line.
The following pre-development information was provided by John Smith Developers:
Site Information
Building 1 - 821-945 Foch Street
The building was purchased in 2001. When purchased, the building foot print was approximately 80,000 sq. ft. The building was redeveloped in 2002- 2003 and has a current foot print of 68,000 with 112 parking stalls on site. Prior to the economic downturn in 2008/2009, there were 12 tenants, which included a Tex/Mex Restaurant, yoga studio, art supply store and a vintage clothing boutique. Currently, the building is 60% leased with in place rents at $14.50/SF NNN. All spaces are approximately 4500 sq. ft and have been previously occupied, so retrofit costs are set at $5.00/SF.
Building2-1001-1059 Foch Street
The building was purchased in 2004. The building foot print is approximately 80,000 sq. ft. Currently, a metal fabricator has leased 100% of the building with an in place rent at $2.50/SF gross. The lease will run out on 12/31/10 and will not be renewed. Building 1 and 2 share the same type of construction: Cast-in-place concrete, dock high finish. Building 2 was built in 1948. Roof construction is flat and is problematic for storm water run-off and retention.
Building 3 - 1001-1059 Foch Street
The building was purchased in 2004 and redeveloped in 2004-2005. The building foot print is approximately 14,300 sq. ft. The building is currently fully leased with average in place rents of $14.50/SF NNN. Current tenants are a restaurant/bar and seven office suites.
Site Analysis
Our Site analysis is a combination of site inspections and current site research. During several site inspections, the following were noted:
1) Accessibility/Ease of Ingress/Egress - Parking during different times of the weekdays did not appear to be a problem. Building 2 and Building 3 share site parking with 42 striped parking stalls and and additional parking area at the east end of Building 2.
2) Traffic Flow - As expected, is heavier during the weekend period (considered Friday at 5:00 p.m. to Sunday at 9:00 p.m). Parking becomes a premium and problematic at times.
3) Pedestrian Flow - is light to moderate along Foch Street during the week and as expected, heavier during the weekend period. The surrounding area, the West 7th Street development/redevelopment has increased accelerated growth over the last several years, which is located adjacent to Foch Street.
4) Tenant Mix - Building 1 is a mixed use of retail with one restaurant. Building 3 is a mixed use retail and office, with a restaurant/bar and office suites.
5) Flood Issues - Due to the type of construction (dock high finish floor), finish floor is approximately 48" above center line of center of Foch Street. Flooding does not seem to be a concern. Site drainage appears to function properly. Storm water runoff has been addressed in the surrounding area due to new construction.
Regulatory/Market Analysis/Analytics
 | |
| West 7th Street - Montgomery Ward Building Mixed Use Development |
While the United States was feeling the effects of the economic downturn in 2008-2009, The State of Texas was in far better condition than the rest of the country. This is witnessed in the West 7th Street Development area where although hit by a decline in the real estate sector, building continued. The boom in this area began in 2007 and has stayed relatively strong, with the possible exception of The Montgomery Ward Plaza mixed-use area. Loft residence undersold, mostly due to the unstable real estate sector and asking prices that reflect higher income earners. First floor retail remained steady, with some businesses having to vacate due to market conditions. Overall, real estate recovery is strong in the 7th Street/Cultural District area where last quarter of 2010 sales of apartments and condos are "brisk". During 2010, 800 apartments and condos have been built. Currently, area retail is growing with a movie theater, restaurants, a gym and clothing boutiques.
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| West 7th Street @ Foch Street - Urban Mixed Use Development |
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| West 7th Street -The Seventh Street Station Multifamily Complex |
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| Tailwind Office Complex - Foch Street. |
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| Time Ten Wine Cellars - Corner of Bledsoe & Foch Streets |
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| Mixed Use-Multifamily/Retail- Corner of Crockett & Foch Streets |
Current Markets
Retail rents are currently at $30-45/SF, NNN (NNN expenses are $11/SF). Office rents in the 100,000 sq. ft. sector are currently $25-26/SF. Land values-2008-sold for approximately $42/SF for the Cypress Equities property, and other building sites values in the area sold for approximately $30-35/SF. Office vacancy remains at approximately 12%, due to the recession. Class A office rents are approximately $22-25/SF plus electric. Retail values varied from $12-45 depending on location. Multifamily rent values were approximately $1.40-1.50 and rising. The Industrial sector showed not activity.
Regulatory/ Local Area Analysis
The City of Fort Worth has zoned this project using the following criteria,"On March 20, 2001, the City Council adopted an ordinance establishing low intensity (MU-1) and high intensity (MU-2) mixed-use districts. The development standards for the mixed-use districts were updated in May 2011, and a new Urban Residential (UR) district was adopted in February 2010 to foster the creation and redevelopment of walkable Urban Neighborhoods." (Retrieved from Fort Worth Zoning Web-site). The West 7th Street/Cultural district is considered by many developers to be a model for Urban living in the Fort Worth and surrounding areas. Several site visits reveal the West 7th Street area immediate to the subject project as a mixed-use area with high automobile and foot traffic at different times of the day, during a Monday thru mid-day Sunday observation focus. The Subject property Site Survey indicates an existing building site of 537.3' x 252.1', or approximately 135,450 sq. ft. with an existing one-story masonry building that measures 161' x 496.1, ' or approximately 79,800 sq. ft., with set-back requirements (easements) measuring 7.5' along the West property line (Foch Street side), Ingress & Egress of 30' along the North side, a 17' Railroad Easement along the rear (East) and an aerial easement along the South property line. Foch Street is intersected by West 7th Street to the North, and Morton and Bledsoe Streets along the West. A concrete sidewalk runs parallel to Foch Street along the subject properties.
Area Demographics
Houses and condos: 16,884
Renter-occupied apartments: 8,101
100% urban population.
Estimated median house/condo value in 2010:
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(49.0%)
(51.0%)Recommendations/Conclusions
Client Criteria
Based on the criteria provided by the client, Sassyk is making the following recommendations:
1) In the case of the use of Tax Credits, we would normally be in agreement. New Market Tax Credits would be one option. We would agree that the client approach the City of Fort Worth for Tax Abatements or other incentives the City might offer.
2) In the case of the property usage, we would recommend a mixed use Retail/Commercial division in the building. We do not recommend any demolition to any of the buildings to create more parking.
Conclusions
Our recommendations are based not solely on current market data, but take into account future real estate trends/markets. Although the real estate sector was greatly affected by the economic downturn in 2008-2009, the West 7th Street Development held steady. Current market analysis - 2nd and 3rd quarter of 2010 - indicate slow, but steady growth in most of the real estate sectors (the exception-the Office sector). Federal Government/State Government economic indicators all indicate constant, but slow growth through 2013. By our area and site analysis, we have observed that the West 7th Street is a vibrant and growing example of the New Urbanism. By all economic indicators, the West 7th Street area will exceed growth expectations.
Analytics
Sassyk recommends the following:
1) As part of Building 2 redevelopment, we recommend a Phase I Environmental Study be
performed due to the former tenant's industrial business.
2) As part of Building 2 redevelopment, we recommend a Structural Engineering Study be
performed on the building due to age and roof structure type.
3) As part of Building 2 redevelopment, we recommend the roof be reconstructed for proper slope to
meet storm water runoff demands.
4) As part of the Building 2 redevelopment, we recommend a facade addition to closely match the
existing Building 1, which will give a more even pedestrian traffic flow.
5) To proceed with Building 2 redevelopment as a retail/commercial or strictly retail complex,
depending on the type of business draw.
Cash Flow Analysis
Option A
Current market rents for retail: $14.50/SF-NNN
Building 2 can be divided into 7 equal 8,800 sq. ft. bays for retail and an oversize south bay at 17,600 sq. ft.
To accelerate growth in the Foch Street Area we recommend a market rent reduction of $13.50/SF-NNN for the first 2 years for the smaller retail bays and $12.50/SF-NNN for the oversize south bay.
Total First Year Lease-up:
8,800 sq. ft. x $13.50/SF x 7 bays = $ 831,600.
17,600 sq. ft. x $12.50/SF x 1 bay = $ 220,000.
Total Annual Gross Income: = $1,051,600
Option B
Current market rents for retail: $14.50/SF-NNN
Building 2 can be divided into 14 equal 4,400 sq. ft. bays for retail and an oversize south bay at 17,600 sq. ft.
We recommend a market rent with current market values of $14.50/SF-NNN for the first 2 years for the smaller retail bays and $12.50/SF-NNN for the oversize south bay.
Total First Year Lease-up:
4,400 sq. ft. x $14.50/SF x 14 bays = $ 893,200.
17,600 sq. ft. x $12.50/SF x 1 bay = $ 220,000.
Total Annual Gross Income: = $1,113,200
Additional Comments:
Economic indicators in the Real Estate Sector for this area will support this project and will complete lease-up of Building 1, currently at 60% lease. Small retail outlets appear to do well in the West 7th area. However, a medium size retail outlet, such as Whole Foods or Trader Joe's can fill a gap for the natural foods retail sector that appears to be missing in the area.
References:
Retrieved from Fort Worth Zoning Web-site :http://fortworthtexas.gov/comprehensiveplan/?id=53556
Retrieved from city-data.com Web-site:
| Read more: http://www.city-data.com/zips/76107.html#ixzz1siUH6pVC | |||||||
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