Nash Building

[Estaman]

I was just reading about the Nash Building on IBJ Property Lines, and can't seem to get the math to work. The article says it is a $10MM project with 8,000sf of retail / commercial and two floors of apartments. If Pecor gets the $24 / sf in rent they are looking for out of the retail / commercial space, that is $192,000 per year in rent (we will assume no vacancy allowance, 100% recapture of expenses, and no capital reserves). I assume there will be slightly less space for apartments, given the need for hallways, lobbies, and common areas, so let's use 7,500 per floor. That is 15,000 sf at $1.30 / sf / month, which comes to $234,000 annually, again with no underwriting. So in total, the building has a potential to produce $426,000 cash flow.

If it costs $10MM, and the City is kicking in $2MM, that leaves $8MM. The debt service on $8MM at 5% with a 25 yr amortization is $567,620, or about $140,000 more than the rents generated. With $426,000 for debt service each year, they could cover about $6MM in debt. Is Pedcor putting in the other $2MM just to get to $0 cash flow?

If $10MM is the market value of the building, how did they arrive at that figure? How can a building that generates $426,000 (before any underwriting) be valued at $10MM? That is a 4.25% cap rate. I am not sure what apartments go for, but even at the height of the market in 2005 - 2007, unachored retail went for 7.5% at best.

I have to be missing something, aren't I?

[NurseOnBike]

I was just reading about the Nash Building on IBJ Property Lines, and can't seem to get the math to work. The article says it is a $10MM project with 8,000sf of retail / commercial and two floors of apartments. If Pecor gets the $24 / sf in rent they are looking for out of the retail / commercial space, that is $192,000 per year in rent (we will assume no vacancy allowance, 100% recapture of expenses, and no capital reserves). I assume there will be slightly less space for apartments, given the need for hallways, lobbies, and common areas, so let's use 7,500 per floor. That is 15,000 sf at $1.30 / sf / month, which comes to $234,000 annually, again with no underwriting. So in total, the building has a potential to produce $426,000 cash flow.

If it costs $10MM, and the City is kicking in $2MM, that leaves $8MM. The debt service on $8MM at 5% with a 25 yr amortization is $567,620, or about $140,000 more than the rents generated. With $426,000 for debt service each year, they could cover about $6MM in debt. Is Pedcor putting in the other $2MM just to get to $0 cash flow?

If $10MM is the market value of the building, how did they arrive at that figure? How can a building that generates $426,000 (before any underwriting) be valued at $10MM? That is a 4.25% cap rate. I am not sure what apartments go for, but even at the height of the market in 2005 - 2007, unachored retail went for 7.5% at best.

I have to be missing something, aren't I?

Hi Eastaman-
I looked at the article http://www.ibj.com/article?articleId=38413
and it seems to me there may not be enough solid information to actually do these calculations. It says there will be 8000 SQ Ft rent-able space on the ground floor, but it doesn't give the entirety of square footage on that floor. There may be some architectural or space usage plan that allows for greater than 8000 Sq Ft on each of the upper floors for use in apartments. The article says there will be 31 apartments. If they were just in 16000 Sq ft, those would be tiny apts indeed: ave of 516 Sq Ft each.
Have you seen a mock up of the building? I haven't seen one. If anyone has a link, post it up.
Thanks,
Julia

[Charmeleon]

I was just reading about the Nash Building on IBJ Property Lines, and can't seem to get the math to work. The article says it is a $10MM project with 8,000sf of retail / commercial and two floors of apartments. If Pecor gets the $24 / sf in rent they are looking for out of the retail / commercial space, that is $192,000 per year in rent (we will assume no vacancy allowance, 100% recapture of expenses, and no capital reserves). I assume there will be slightly less space for apartments, given the need for hallways, lobbies, and common areas, so let's use 7,500 per floor. That is 15,000 sf at $1.30 / sf / month, which comes to $234,000 annually, again with no underwriting. So in total, the building has a potential to produce $426,000 cash flow.

If it costs $10MM, and the City is kicking in $2MM, that leaves $8MM. The debt service on $8MM at 5% with a 25 yr amortization is $567,620, or about $140,000 more than the rents generated. With $426,000 for debt service each year, they could cover about $6MM in debt. Is Pedcor putting in the other $2MM just to get to $0 cash flow?


If $10MM is the market value of the building, how did they arrive at that figure? How can a building that generates $426,000 (before any underwriting) be valued at $10MM? That is a 4.25% cap rate. I am not sure what apartments go for, but even at the height of the market in 2005 - 2007, unachored retail went for 7.5% at best.

I have to be missing something, aren't I?

Nah, business as usual.

Over value the cost of Private Investment and under value the cost of the Cities Planned Capital Expenditure Projects.

I don't think we have witnessed this Mayor ever bringing in a project at or under initial projections.

I'd be glad to recant that last comment if anyone can show me an example. He's been Mayor 16 years, surely my generalization can't be correct, can it?

Bruce, I'm throwing you a real softball here. I've got to let you hit one occasionally and this is the Season of Peace on Earth and Good Will Toward Humanity.

[761]

I have seen plans. 8,000 sf retail and 8,000 sf apt on 1st. 16,000 sf apts on both 2 and 3. So, 8,000 sf retail, 40,000 sf apt totals. More like $816,000/yr, using your multipliers. FYI

[MikeG]

I have seen plans. 8,000 sf retail and 8,000 sf apt on 1st. 16,000 sf apts on both 2 and 3. So, 8,000 sf retail, 40,000 sf apt totals. More like $816,000/yr, using your multipliers. FYI

Thanks Evan, that makes sense. But with a predicted positive ROI why the need for the city to kick in millions? That just suggests subsidies are unnecessary then.

[Estaman]

I have seen plans. 8,000 sf retail and 8,000 sf apt on 1st. 16,000 sf apts on both 2 and 3. So, 8,000 sf retail, 40,000 sf apt totals. More like $816,000/yr, using your multipliers. FYI

Thanks for the clarification, that does make much more sense.

The IBJ article failed to mention the larger footprint and additional ground level apartments. From the article:
"It will contain 31 one-, two- and three-bedroom apartments on the second and third floors and 8,000 square feet of commercial space at street level."

[761]

Thanks Evan, that makes sense. But with a predicted positive ROI why the need for the city to kick in millions? That just suggests subsidies are unnecessary then.

Wow there Mike, all I said is I saw the plans. And that's 761 to you.

[CarmelBruce]

Thanks Evan, that makes sense. But with a predicted positive ROI why the need for the city to kick in millions? That just suggests subsidies are unnecessary then.

Number one the City isn’t kicking in money but the developers own taxes will go for the parking garage, which is more than just a garage.

The upper deck will be public space like the European cities that we all spend so much money to travel to and vacation in.

Did you read about Fishers yesterday and their 1st of many projects in their new downtown? Public Private Partnerships are becoming the norm for a number of good reasons.

They take a strip center type development with limited economic lifespan and then with the PPP's they are able to turn them into a much higher use. Once those bonds for the public part are paid off the City is the long term winner as it will receive substantially more taxes than it would have without the partnership.

I suggest you may want to visit CityWay that is adjacent to Eli Lilly and is being built using PPP's.

[FleetDefender]

...like the European cities that we all spend so much money to travel to and vacation in.

This is a joke, right?

A whole bunch of us can't afford that kind of travel, and likely never will.

Hate to derail this, but comments like that just suck.

[Estaman]

Number one the City isn’t kicking in money but the developers own taxes will go for the parking garage, which is more than just a garage.

The upper deck will be public space like the European cities that we all spend so much money to travel to and vacation in.

I hate to sound like I just fell off the turnip truck, but I have never been to Europe, so I can plead ignorance. Do they really have public areas on top of their parking garages?