Originally Posted by shivtim
^I have to disagree with those of you stating the economics aren't there. I'm not talking about putting the parking underground, I'm talking about hiding it, either in a podium or masking it by surrounding it with retail or residential entrances and covering it with a similar facade as the rest of the building. This has already worked well in Midtown. See Plaza Midtown, Viewpoint, Spire, Post Parkside, 1010, etc... we simply don't have to settle for this type of ginormous, detached, ugly, obvious parking deck that takes up three times as much land area as the building itself.
As for parking decks eventually being torn down and replaced with a building, it simply doesn't happen. Can anyone think of one instance of this occurring in Midtown? Or anywhere in Atlanta, for that matter? The only thing I can think of is the small parking deck at City Hall East that is currently being torn down as part of the conversion to Ponce City Market. If this deck gets built, we will be stuck with it for decades.
Let's pretend it adds $0.10 to rents (via 5% increase in construction costs). $1.85 to proforma is already pushing rents in Atlanta for "non-luxury" highrises (i.e. not Mezzo or 05 Buckhead). $1.95 might be beyond reach, and then leaves no room for rent growth and may result in concessions, taking down the net effective rent. This project is an investment, and will cost a good $200ish/SF to build with the deck to the side. Let's say gross revenue is about $20/SF (per annum) and expenses are at about $7/SF. Let's say interest on their construction loan brings that down by $9/SF on avg over the first 3 years ($50M loan, 5% int, 30 year amort, 250,000 SF - 800 SF avg unit size). That leaves them $4/SF per year to essentially distribute. They need strong occupancy of 95% or higher, really strong rent growth (investors often annualize prior 3 months of revenue over prior 12 months expenses for stabilized rental properties), and they need strong cap rates which will require Atlanta to remain a good multifamily market.
Pushing rents even $0.05/SF too high could be devastating to proforma as a project like this most likely depends on a strong reversion to attain a solid 15-20% IRR and a "profit" of at least 75% on top of their equity contribution (an equity multiple of at least 1.75).
I put together a completely juvenile proforma here -
Year 0 they put in $50/SF (20% LTC)
Year 1 they take back $4
Year 2 they take back $4.12 (let's pretend this figure grows 3% annually)
Year 3 $4.24
Year 4 $4.37
Year 5 $4.50 CF + ($13NOI*1.03^4/cap rate of 5.25%) = $280/SF - ~$194/SF loan paydown - net of $90.50
IRR = 18%
DCF yield capitalization at 7% discount = 22% CF and 78% reversion (very lopsided and reliant on reversion)
I think these projects are risky as hell and in Atlanta they are always teetering on the edge of feasibility. A podium could be the tipping point.
Therefore I direct my anger elsewhere and hope that we solve our transit problem by expanding rail, and that we keep centralizing so that walking/biking is encouraged, and then parking may not be an issue any longer and higher rents north of $2/SF may become market-rate (thereby making high-rise living much more lender friendly and easier to justify).