cbd-investment proposal (commercial)-The Axle-15-0708

THE AXLE

REDEVELOPMENT OPPORTUNITY June 2015

© 2015 Central Barrio Development, LLC & Southwest Urban Development, LLC © 2015 Central Barrio Development, LLC & Southwest Urban Development, LLC

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CONFIDENTIALITY STATEMENT: Information contained in this executive summary is strictly confidential and is being presented to specific persons with the understanding that those persons will maintain confidentiality and not disclose or distribute any part of this plan to third parties without the prior written permission of the author(s). Information includes any data, reports, schedules, or attachments that may be contained in or referred to in this document.

Downtown Tucson LIVING DOWNTOWN Over the past six years, $380 million in private investment and $530 million in public investment have been made in Downtown. As of December 2014, more than $200 million in additional private investment projects have been proposed, ranging from new low-income and market-rate residential projects to hotels and cultural venues. Source: Downtown Tucson Partnership 2014.

A renewed interest in urban living has led to more people moving in and around Downtown, especially along the newly launched, 3.9-mile modern streetcar route. Downtown Resident Data. Census Bureau data indicates that nearly 13,000 people lived within a mile of Downtown in 2010, 56.8% of whom are 15-34 years old (US Census Bureau 2010). An estimated 100,000 people live and work within a half-mile of the streetcar route, 20,961 of whom work in Downtown (ESRI).

Projections based on 2010 Census data estimate that the population has grown and will continue to grow at a modest rate. However, future population growth is likely underestimated, given the pace of development that Downtown Tucson is currently experiencing. Source: Downtown Tucson Partnership


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Housing Demand. The demand for housing in Downtown remains strong as demonstrated by a 97% rental occupancy rate (Downtown Tucson Partnership 2014) and Downtown’s designation as the city’s most-searched neighborhood for renters (Craig 2014). All Downtown multifamily buildings built since 2000 have occupancy rates above 90%, and many have waiting lists. In response to this demand, approximately 450 units have been proposed for construction in Downtown. 1. All multifamily vacancy data is collected for buildings with 20 units or greater.

Source: Downtown Tucson Partnership 2014


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New Business. Since 2008, more than 200 new businesses have been established in Downtown (Downtown Tucson Partnership 2014). Streets that were once empty are now bustling with pedestrians exploring the

dozens of dining options, retail stores, and nightclub destinations that call Downtown home. Professional services firms have returned to Downtown, improving the office market and increasing demand for lunch options. With a new grocery store set to open in

February 2015, Downtown will offer all of the essentials for residents to live car-free.

In total, new businesses have brought more than 3,000 new or relocated jobs to Downtown. Remarkably, much of this 75-month surge has been driven through local, small business investment. More than 95% of retail and restaurant businesses in Downtown are independent and owned by Arizonans

Source: Downtown Tucson Partnership 2014


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The Project PROJECT DESCRIPTION The redevelopment plan envisions the reuse of a 10,000 SF warehouse located just north of Downtown Tucson into a multi-user urban hub anchored by a microbrewery occupying 5,000 SF or half the area of the building. The plan also contemplates subdividing the remaining area (5,000 SF) into two different commercial spaces for lease to users synergetic with the anchor tenant. A larger space with an area of 3,000 SF to be adapted into a co-working space for artists, artisans and professionals in the design field and a smaller space with an area of 2,000 SF targeted to a gym, cross-fit or fitness user with an urban identity. The building has had different uses throughout the years, initially as a telephone company, later as a taxi central and currently as a transmission shop. Because of the building’s character, striking architectural features, proximity to downtown and open floor plan, the project has the potential to garner significant interest from not only the type of businesses mentioned above but also others already looking to relocate downtown. MARKET AND COMPARABLES The project aims to target startups, small and medium sized businesses looking to locate or relocate to the urban core as well as some light industrial and special purpose users. PROJECT INFORMATION SITE ADDRESS: 301 W 4th Street PROJECT TYPE: Office, Light Industrial, Special Purpose LOT AREA: 35,382 SF (0.81 Acres) BUILDING AREA: 10,000 SF HEIGHT: 22 Feet ZONING: I-3


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THE PROPERTY The property is zoned I-3 and is located at the corner of Main Avenue and 4th Street in Dunbar Spring, a small, historic, and culturally diverse neighborhood located just north of downtown Tucson. The Dunbar Spring neighborhood is bordered by Speedway Boulevard to the north, Stone Avenue to the east, Sixth Street to the south and the Union Pacific railroad and Main Avenue to the west. The neighbors are Blue Moon to the north, Barrio Anita to the west, El Presidio and the Arts Warehouse District to the south and West University to the east. Aerial Photo

Site

Downtown


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Incentives Thanks to its location, the property is eligible for the Infill District and the Government Property Lease Excise Tax (GPLET) incentives. In addition, the property is situated within walking distance from multiple stops of the Sun Link Streetcar and the future pedestrian bridge and plaza on 9th Avenue and 5th Street, as part of the Downtown Links Project shown below. The Infill District Incentive relieves property owners from parking, loading, and landscaping standards as well as certain other dimensional requirements and allow height increases up to sixty feet in more restrictive zones if the development supports transit and pedestrian oriented development. Developers can also benefit from a streamlined Planned Area Development rezoning process. The GPLET is awarded to qualifying properties located within the Central Business District and provides up to (8) eight years of property tax abatement.


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Proximity to Sun Link Streetcar

Downtown Links Project

THE AXLE

THE AXLE


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Team MANAGEMENT TEAM The management team is comprised of Hector Jimenez, Adam Lundquist and Bob Lanning, who bring complementary skills and experience to ensure the success of the project. Our team will provide and coordinate the development services described below:

1. Market Analysis and Due Diligence 2. Project Conceptualization 3. Financial Analysis and Pro Forma 4. Architectural Schematic Design 5. Construction Documents 6. Permitting and Approval 7. Development Planning and Execution 8. Construction and Project Management 9. Marketing, Sales and Project Disposition 10. Real Estate Brokerage

All or parts of Legal, Accounting and Marketing functions are subcontracted to trusted and experienced partners when necessary. HECTOR JIMENEZ Hector capitalizes on a keen sensibility for design and relevant experience as an entrepreneur, architect and developer to analyze, design and execute distinctive urban projects. His previous experience includes leading the Development Services and Custom Homes Divisions with Loreto Bay, a sustainable master-planned resort community, later acquired by Citigroup Property Investors. Hector later collaborated with FONATUR, the sustainable resort developer arm of the Mexican government, leading 300 employees in the management of 14 business units comprised of a network of marinas, golf courses and other amenity assets. Mr. Jimenez holds an MBA and Master of Architecture from the University of Illinois at Urbana-Champaign. ADAM LUNDQUIST A native Arizonan and co-founder of Southwest Urban, Adam brings his project management and development experience to oversee all aspects of pre-development, design, construction and delivery activities


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for the firm. Adam’s core experience includes providing project management services for a wide range of commercial and residential projects in addition to being vice president of a mining and manufacturing company. Adam has a particular interest in sustainability with a focus on locally sourced materials and owns an adobe production company in Tucson. Mr. Lundquist holds a degree in Business Management and Regional Development from the University of Arizona. BOB LANNING Bob Lanning formed Lanning Architecture in 1998 in order to further direct his career and interests in architecture in the desert southwest. Bob has lived and worked in the downtown Tucson area since 1985 and has grown to love downtown and the adjacent historic districts, Tucson’s oldest neighborhoods. His work has included the adaptive re-use of historic structures, additions and renovations of historic structures, and new construction. He has focused on single-family residential, multifamily residential, and commercial work, and his work has been published often. A significant focus of his work has been the exploration and use of “alternative” and green architectural materials and building systems. Bob believes that it is still possible to provide places for people to live, work, learn, and play that are interesting and wonderful as well as sustainable and affordable. Mr. Lanning holds a Bachelor of Architecture from the University of Arizona.


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Financials Central Barrio Development, LLC and Southwest Urban Development, LLC have secured the property under contract for a purchase price of $525,000 with an approximate close of escrow date of August 20th, 2015. The incorporated proforma assumes the following cost figures: Acquisition Costs: $525,000 Renovation Costs (Includes hard and soft costs): $444,500 Financing Costs: $31,190 Total Project Cost: $1,000,690 The incorporated proforma assumes the following income:

UNIT SIZE RENT/SF # OF UNITS MONTHLY ANNUAL

5,000 SF $11 1 $4,583.33 $55,000

3,000 SF $11 1 $2,750 $33,000

2,000 SF $11 1 1,833.33 $22,000

Listed below are other key assumptions included in the proforma: Project Timeline Rehab Period: 8 months Lease-Up Period: 4 months Operating Assumptions Cap Ex Expenses: $0.50 per Rentable Square Foot Vacancy Rate: 5% Rent Increase per Year: 3.5% Cap Ex Expenses Growth: 2.0%


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Proposed Structure As indicated above, the total cost of the project is $1,000,690. Under the proposed opportunity, we are seeking to obtain private capital in the amount of $530,000 for the acquisition of the property. The remaining amount of $470,690, which includes soft costs, rehab and improvements, will be financed through a development loan under the following terms: LTV: 37% Interest Rate: 6% Mortgage Recording Tax: 1.45% Loan Points: 1.25% We are proposing a refinance by 2017, when the property reaches stabilization, under the following terms: New LTV: 24.17% Interest Rate: 6% Amortization: 25 years DSC Ratio: 1.25 NOI at Refinance: $105,665 Resale at year 5 (for analysis purposes) Cap Rate: 7% Selling Costs: 1.5% Annual NOI at resale: $125,810 Net at Disposition: $ $1,770,330 PROPOSAL Under the proposed structure, we are seeking an investment of $530,000 in exchange for 60% of all net cash flows. Based on these and the rest of assumptions in the proforma, we are projecting a Net Cash Flow of $1,280,652 for a project Internal Rate of Return (IRR) of 20.17% for the investor. The proforma does not include the 8-year property tax abatement, an amount estimated at $100,000, that might be available through the GPLET described above.

Equity % of Total Equity Initial Amount Deficit Share * % of Cost Total Equity

Sponsor/Developer Equity 16.00% $100,000 $859 10.08% $100,859Third Party Investor Equity 84.00% $525,000 $4,511 52.91% $529,511Equity Total 100.00% $625,000 $5,370 62.99% $630,370

TotalDebt DateSenior Loan ** 12/20/15 6.0% Interest 100.00% 37.01% $370,321

Mortgage Recording Tax 12/20/15 1.45%Loan Fees - Front End 12/20/15 0.50%Loan Fees - At Draws 0.75%

Debt Total 37.01% $370,321Property Cash Flow 0.00% $0

Total Sources of Funds 100.00% $1,000,690* Operating Deficit and Financing-related Deficits** Loan amount includes capitalized interest and capitalized points/fees

DEVELOPMENT SOURCES OF FUNDS

Land & Acquisition Costs 3.81% Deposit 52.46% $52.50 $525,000/Unit $525,000Parking Space Acquisition Costs $0/Space $0Total Hard Costs 36.03% $36.05 $360,500/Unit $360,500

DEVELOPMENT USES OF FUNDS

Commercial Hard Costs $35.00/Apt. GSF 34.98% $35.00 $350,000Owner Directed Hard Costs 0.00% $0.00 $0FF&E 0.00% $0.00 $0Contingency 1.05% $1.05 $10,500Commercial Tenant Improvements 0.00% $0.00 $0

Total Soft Costs and Fees 8.39% $8.40 $84,000/Unit $84,000Soft Costs $4.00 $40,000Sponsor/Developer Fee 0.00% paid during Pre-Dev. $0CM Fee (Sponsor/Developer) $0Commercial Leasing Commissions $44,000

Financing Costs Incl. Cash and Capitalized Int./Fees 3.12% $3.12 $31,190/Unit $31,190Total Development Cost (Uses of Funds) 100.00% $100.07 $1,000,690/Unit $1,000,690Operating Deficit $0Total Development Cost Including Operating Deficit $100.07 $1,000,690

3.00% of Base Building Hard Costs

24.00% of Base Building Hard Costs

0.00% of Base Building Hard Costs0.00% of Base Building Hard Costs

CASH FLOWCommercial

Vacancy 5.0%Credit & Collection Loss 1.0%Rentable SF 10,000 RSFCapEx Reserve Per RSF Per Year $0.50

Annual Inflation FactorsIncome 2.50% Expenses 2.00%

NNN Rent TI Allowance TI Start Month # TI Schedule Rent GrowthBrewery $11.00 $0.00 Month 8 3 Months 3.50%

Leasing Commissions Term LC Payment Lead Time * 3 Months Expense/CapEx Growth4.00% 10 Years * # of months prior to TI Start Month 2.00%

INCOME, TI AND LC ASSUMPTIONS

Stabilization Month 11 NOI at Point of Refinancing $105,665Month # of Refinancing Month 22 Maximum Loan Amount * $1,056,647Date of Refinancing 11 mos. after 90% occy. 02/20/2017 Amount Borrowed Remaining Principal Only

Principal Amount $364,920Term 10 YearsAmortization Period 25 Years Remaining Senior Loan Principal $364,920Interest Rate 6.0%Monthly Payment $6,808 Excess Proceeds to Equity $0New Loan LTV 24.17% Loan/Broker Fees/Closing Costs ** 1.5%* The Lesser of the two Maximum Loan Proceeds Amounts Interest Only Period (Enter 0 if None) 0

PERMANENT LOAN REFINANCING OF DEVELOPMENT LOAN(S)

Disposition Month 77Sale Date 9/20/21(Year 2,021 of model)

Capitalization Rate 7.00%

Selling Costs 1.5%$125,810

Disposition, Net $1,770,330

DISPOSITION

Annual NOI in Month 89:

(Year 5 of operation)

Commercial

Total Equity Invested * $630,370Going-In NOI ($474) Project 24.56%Going-In Yield 10.69%

WaterfallNet Cash Flow $1,280,652 Sponsor/Developer/Developer 38.83%Multiple on Equity ** 3.03x Third Party Investor 20.17%Net Present Value at 7.00% $695,744

RETURNS SUMMARY, FROM MONTHLY CASH FLOWS

Internal Rate of Return

Annual Summary - Cash Flow301 W 4th Street, Tucson, AZ

2015 2016 2017 2018 2019 2020 2021 2022

Commercial Gross Potential RentLess VacancyLess Credit Loss

Commercial and Commercial Parking Net Operating Income (NOI)Capital Expenditures (Replacement Reserves)Commercial & Commercial Parking NOI after Replacement Reserves

Net Operating Income

Total Debt Service Expense

Total Potential Capital Event Revenue, Net

Net Revenue After Financing Costs

Financing Cash FlowsSponsor/Developer Initial Equity Commitment DrawSponsor/Developer Land Loan Costs & Operating Deficit DrawThird Party Investor Initial Equity Commitment DrawThird Party Investor Land Loan Costs & Operating Deficit DrawRevenue Paid Towards Late Development Costs

Senior Construction Loan DrawSenior Construction Loan Repayment

Permanent Loan ProceedsPermanent Loan Repayment from Sale of Commercial

$850,698 0 113,850 117,835 121,959 126,228 130,645 135,218 104,963($42,535) 0 -5,693 -5,892 -6,098 -6,311 -6,532 -6,761 -5,248($8,507) 0 -1,139 -1,178 -1,220 -1,262 -1,306 -1,352 -1,050

$799,656 0 107,019 110,765 114,641 118,654 122,807 127,105 98,665($34,565) 0 -3,400 -5,168 -5,271 -5,377 -5,484 -5,594 -4,270$765,091 0 103,619 105,597 109,370 113,277 117,322 121,511 94,395

$765,091 0 103,619 105,597 109,370 113,277 117,322 121,511 94,395

$134,685 $5,370 $0 $23,512 $28,214 $28,214 $28,214 $21,161 $0

$1,770,330 $0 $0 $0 $0 $0 $0 $1,770,330 $0

$2,275,973 -5,370 103,619 82,085 81,156 85,063 89,108 1,840,312 0

($100,000) -100,000 0 0 0 0 0 0 0($859) -859 0 0 0 0 0 0 0

($525,000) -525,000 0 0 0 0 0 0 0($4,511) -4,511 0 0 0 0 0 0 0($5,400) 0 0 -3,400 0 -2,000 0 0 0

$339,100 28,900 309,000 1,200 0 0 0 0 0($364,920) 0 0 -364,920 0 0 0 0 0

$364,920 0 0 364,920 0 0 0 0 0($364,920) 0 0 0 0 0 0 -364,920 0

Project Levered Cash Flow $1,280,652 -630,370 103,619 78,685 81,156 83,063 89,108 1,475,391 0

Joint Venture Return Detail301 W 4th Street, Tucson, AZ

Sponsor/Developer

Third Party Investor Total Project

Equity Investment $100,859 $529,511 $630,370Share of Equity Investment 16.00% 84.00% 100.00%

Gross Return $613,120 $1,297,902 $1,911,022Net Profit (Return on Equity) $512,261 $768,391 $1,280,652Multiple on Equity 6.08x 2.45x 3.03xInternal Rate of Return 38.83% 20.17% 24.56%Time from Equity Investment to Final Return (months)

77 77 77

Profit Sharing Summary - Sponsor/Developer and Third Party Investor Profit Sharing Structure - Sponsor/Developer and Third Party InvestorTier Sponsor/

DeveloperCashflow

Sponsor/Developer Share

Third Party Investor Cashflow

Third Party Investor Share

Total Cashflow

Sponsor/Developer Promote

Sponsor/Developer

Equity Pro-Rata Share

Investor Profit Share

Total (must be 100%)

ROC and Pref Return $100,859 16% $529,511 84% $630,370 Preferred Return 0% through 0% 0% 16% 84% 100%Tier 1 $512,261 40% $768,391 60% $1,280,652 Residual Split Above 0% 24% 16% 60% 100%Total $613,120 32% $1,297,902 68% $1,911,022

Less Equity Investment ($100,859) 16% ($529,511) 84% ($630,370)Net Profit (Return on Equity) $512,261 40% $768,391 60% $1,280,652

IRR Hurdle Ranges

16%

84%

Share of Total Equity Investment

Sponsor Third Party Investor

40%

60%

Share of Total Profit Sponsor Third Party Investor

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000 Net Profits

Sponsor

Third Party Investor


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DISCLAIMER Neither the managers or management entities of the proposed investment (collectively, the “Manager”) nor any of their respective members, managers, partners, shareholders, officers, directors, employees, agents, attorneys or principals (collectively, along with the Manager, the “Manager Parties”) has made or will make any representations or warranties, express or implied, as to the accuracy or completeness of this Information Memorandum (“Memorandum”) or any of its contents, and no legal commitment or obligation shall arise by reason of this Memorandum or its contents. Some of the information contained in this Memorandum has been obtained from third parties and has not been independently verified. Analysis and verification of the information contained in this Memorandum is solely the responsibility of the prospective members or investors. Any prospective members or investors should independently verify each item of information and have the same reviewed by their respective financial, tax and legal advisors before deciding to invest.


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THANK YOU!

We look forward to a potential and rewarding partnership.

For further inquiries or questions please contact:

Hector Jimenez mailto:[email protected]

Mobile: 520 850 6933

For more information about our companies please visit:

http://www.centralbarrio.com http://www.swurban.com

cbd-investment proposal (commercial)-The Axle-15-0708

Documents

mile of downtown

downtown home

downtown esri

central barrio development

downtown resident data

downtown multifamily

pace of development

urban living