ATLANTA | Construction Thread V

[shivtim]

Isn't the rendering posted above (by Micropundit) Skyhouse? Unless they're being so lazy that they're building pretty much the exact same design just a few blocks away. Wouldn't put it past Novare.

[simms3_redux]

I personally wouldn't go so far as to criticize Jim Borders, or even Novare, per se. They are literally doing what is both profitable to them and their partners (if there are any), the lender (if they are in discussions), and what is feasible to the market. Unfortunately zoning codes do not help the situation from a parking standpoint, and neither does Atlanta transit lend itself to the situation. It's still a car mentality, and a podium construction setup may have brought average rents from say a theoretical $1.75/SF to $1.85/SF, which may be ahead of the market.

Also I have a lot of personal respect for Jim Borders.

I guess much of my strife is with 2 things - the overall market conditions and the fact that the garage does not allow for further development of the site nor does it adequately cover the Viewpoint podium (and I am upset about the land carve-out right on Peachtree).

[simms3_redux]

Originally Posted by shivtim

Isn't the rendering posted above (by Micropundit) Skyhouse? Unless they're being so lazy that they're building pretty much the exact same design just a few blocks away. Wouldn't put it past Novare.

No that's 100 6th. Same architect, same general plan. It's what is working right now...and it's what will get them financing (perhaps by UBS again). The top/crown is "slightly" different.

[Tuckerman]

There is certainly nothing unusual in cities with duplicate buildings in close proximity. It is obvious with housing in suburbs, but any perusal of NYC, Chicago or any other urban area have multiple identical buildings. I am currently in Brasilia and if you want to see multiple duplicate high rise - come here. And if you want to see the results of mid century urban planning on steroids - come here. It makes the perimeter area look like it is intensely urban.

The best plans of urban planners with good intentions have often resulted in soulless outcomes. We need to be careful that we don't repeat ideologically based urban notions that come and go.

[Terminus]

Originally Posted by simms3_redux

(and I am upset about the land carve-out right on Peachtree).

I'm not sure I follow you. There's currently a new building on Peachtree at 6th (the low-rise portion of Viewpoint). Are they planning on demolishing that to create a plaza? If so, that is extremely flawed.

[foxmccleod]

Originally Posted by simms3_redux

I guess much of my strife is with 2 things - the overall market conditions and the fact that the garage does not allow for further development of the site nor does it adequately cover the Viewpoint podium (and I am upset about the land carve-out right on Peachtree).

Sprint is on the corner of 6th and Peachtree. Do you mean that the storefront along 6th doesn't extend all the way to Sprint? That would be a huge mistake, but not one that they couldn't fix. They never intended to build a tower due south of Viewpoint so as to not block the views, but retail along 6th to Peachtree should be a necessity.

[shivtim]

Wow, this parking deck is a disaster.


Source: Midtown Patch

[Tuckerman]

Originally Posted by shivtim

Wow, this parking deck is a disaster.


Source: Midtown Patch

Agreed, the parking deck is unfortunate; in years to come we can hope that they will be underground - currently the costs just don't justify it. Eventually it will be torn down and replaced with a high rise with built in parking.

[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.

[simms3_redux]

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).

[shivtim]

I am not versed in construction costs or financing buildings, and I don't really understand the specifics of what you're talking about at all. But I gather what you're saying is that for rental properties, it's not financially viable to build a podium garage. I'm sure this is mostly true.

But the fact is we've seen parking decks done well on properties here in Midtown. Even just recently, 77 12th street is rental, and it will have a podium. And I'm not talking only about podiums. Hell, I'd be happy if they'd at least clad this turd in glass so it's not as obvious. I can't imagine that would add too much to the cost. Or, why not wrap it in apartments on two or three sides, like almost every recent complex in the city has done?

[Slog]

Originally Posted by simms3_redux

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).

Great post. I don't many people will understand these numbers if they have not taken a real estate finance class or been in the business.

One thing to note...that a lot of people don't understand is parking cost on average of 13000-15000 PER space. Yes, per space. So if you have hundreds of parking spaces...thats a huge chunk of your construction cost. The only way this project works is if it is detatched and precast which gets the costs to 10000 or so. I don't see why they just don't wrap the parking deck in narrow townhome models. Hmmmm. Or do something fun. Hell, put a green wall of wines for all I care. I just dont want to see a concrete box that creates a dead zone.

Regardless, $1.85 IS achievable. Just look at Post Biltmore and apparently the residents just said that the new owners are jacking up rents. This project is in a prime location so they can squeeze the box. I don't know if they are going to do 800SF but I wouldn't be surprised. They have the right location and it looks like the windows will be storefront class to create an illusion of bigger units.

[pdpmishap]

Originally Posted by shivtim

I am not versed in construction costs or financing buildings, and I don't really understand the specifics of what you're talking about at all. But I gather what you're saying is that for rental properties, it's not financially viable to build a podium garage. I'm sure this is mostly true.

But the fact is we've seen parking decks done well on properties here in Midtown. Even just recently, 77 12th street is rental, and it will have a podium. And I'm not talking only about podiums. Hell, I'd be happy if they'd at least clad this turd in glass so it's not as obvious. I can't imagine that would add too much to the cost. Or, why not wrap it in apartments on two or three sides, like almost every recent complex in the city has done?

The 77 12th St podium isn't exactly the most integrated setup I've seen.




Source: http://www.bizjournals.com/atlanta/n...=image_gallery

From 2 sides, it's a pretty hideous deck in its own right. Dressing up the 12th st side is still just window dressing.

Who knows, maybe it's a smart hedge by Novare. If the rest of midtown infills, they are apartments so you can separate parking costs and reduce deck usage when a 3rd building is economically viable. It definitely would be here for decades (as should all structures where you've invested millions to build).

At least in the future if prevailing land prices/transit are solid enough, there's only a 4 story deck to knock down instead of a building w/ several floors of underutilized deck space integrated in.

[smArTaLlone]

Originally Posted by pdpmishap

The 77 12th St podium isn't exactly the most integrated setup I've seen.

From 2 sides, it's a pretty hideous deck in its own right. Dressing up the 12th st side is still just window dressing.

Who knows, maybe it's a smart hedge by Novare. If the rest of midtown infills, they are apartments so you can separate parking costs and reduce deck usage when a 3rd building is economically viable. It definitely would be here for decades (as should all structures where you've invested millions to build).

At least in the future if prevailing land prices/transit are solid enough, there's only a 4 story deck to knock down instead of a building w/ several floors of underutilized deck space integrated in.

Those two sides shown are on the interior of the block unlike Novare building a deck across the entire block. Future or existing buildings will cover those views at 77 12th St.

But the main point here is that the apartment tower is built on a podium in the exact same market conditions that Novare is building in.
Accepting a monstrous parking deck on the off chance that at some point in the future it will be partially demolished seems a bit of stretch to me.

[simms3_redux]

^^^Haha the renderings they don't want you to see!

I lived at Post Biltmore "back when 2 bedrooms were still only $1550", heh. I think they're north of $2K now?

See I'm just an entry level analyst and see numbers all day...it's great to hear input regarding cost effective ways to conceal a deck...like the ivy! Perhaps Novare does take some unnecessary shortcuts and there is a middleground whereby local residents can be appeased (i.e. us) and Novare can still see their required return and meet proforma.


Regarding the carve-out (of land):

[BlueSangha]

Originally Posted by Tuckerman

Agreed, the parking deck is unfortunate; in years to come we can hope that they will be underground - currently the costs just don't justify it. Eventually it will be torn down and replaced with a high rise with built in parking.

Wow, this is gross. Yet it will probably get built this way...ugh.

[testarossa50]

I'd really like for apartments to start breaking out the pricing of parking and rent. I seem to recall $50/mo being roughly the revenue needed to cover a parking deck's construction and operation--seems like a reasonable surcharge. At least throw a bone to the renters who don't need or want to drive, or only have 1 car for a 2/2.

[Slog]

Originally Posted by simms3_redux

See I'm just an entry level analyst and see numbers all day...it's great to hear input regarding cost effective ways to conceal a deck...like the ivy! ]

I remember seeing this in Miami, Here is a picture. Retail and covered deck<3



source: http://www.elledecor.com/image/tid/4...ickHome&page=1

[DPC]

Originally Posted by testarossa50

I'd really like for apartments to start breaking out the pricing of parking and rent. I seem to recall $50/mo being roughly the revenue needed to cover a parking deck's construction and operation--seems like a reasonable surcharge. At least throw a bone to the renters who don't need or want to drive, or only have 1 car for a 2/2.

How much parking is required per unit anyway? I wonder if we will ever lower the parking requirement. Seems like the parking decks are what drives the cost up for these buildings. I'm sure even if they could make the parking decks smaller, it would make these projects easier to design and much cheaper. Most people don't prefer to use cars in Midtown anyway.

[DPC]

Originally Posted by simms3_redux

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).

I don't think the OP or most people on the board understand this. I know I don't lol.