proposed multifamily development ridgeville, sc by ...€¦ · charleston market overview the...

Proposed Multifamily DevelopmentRidgeville, SC

by

Ecstatic Properties, LLC

Preferred Equity Ecstatic Properties, LLC is seeking approximately $19.5 million in preferred equity

for a $41.7 million multifamily development project in greater Charleston, SC that will be further described in the following pages.

The project qualifies for Opportunity Zone equity enhancements. Targeted hold: 10 years Targeted IRR (10-year): 17% Targeted equity return multiple (10-year): 2.5x 8% preferred return, then 20/80 sponsor & investor split

TRADE SECRET – CONFIDENTIAL – DO NOT DISTRIBUTE 2

Charleston Market OverviewThe primary driver of the greater Charleston, SC economy is the Port of Charleston, with an estimated annual economic impact to the area of $6.3 billion. The Port of Charleston and the trade-related to its use has been a critical factor in the location of Boeing, Mercedes Benz, and Volvo to the area. Volume through the Port of Charleston has increased at a compounded annual growth rate of 8%, and expectations for future growth will be driven by the Charleston Harbor deepening project to 52 feet that will allow post-Panamax services with vessel sizes of 13,000 TEUs.

Once the Charleston Harbor deepening project is completed it will be the deepest Port on the East Coast and will enable it to compete for additional international trade routes.

The Port of Charleston is the 9th largest U.S. seaport facility and over the past 5 years volume has grown by a compounded growth rate of 8%, and on the East Coast the Port of Charleston is the 4th largest seaport.

Charleston has experienced rapid population, employment, and business expansion (Boeing, Mercedes, Volvo, etc).


Charleston MSA Key CRE Data PointsMetric Economic1 Multifamily2

Unemployment Rate 2.7%Labor Force Employment 356,500Labor Force % Growth 1.25%Vacancy 5.0%Effective Rent / Month $1,140Effective Rent Annual Growth 4.0%1.) Federal Reserve Bank of Richmond, November 2018 Monthly Update of the Fifth District.2.) Marcus & Millichap 4th Quarter 2018 South Carolina Multifamily Research Report.



Ridgeville Trade Area Charleston MSA

18 miles

On-site

32 miles



Volvo manufacturing facility to be located in Ridgeville in the new Camp Hall commerce park. Camp Hall is a 6,300 acre industrial business Park owned by Santee Cooper that is off I-26 (exits 189 & 187).

Upon opening, the Ridgeville factorywill be the global production home ofthe new S60 Sedan and will be exportedthroughout the world via the PortOf Charleston.

Volvo Cars USA estimates a workforce of 4,000+ people. According to an economicimpact analysis by the College of Charleston,the plant would contribute $4.8 billion intotal economic output on an annual basis.



• $45 million interchange to open in early 2019 to provide direct access to the 2.1 million square foot Volvo manufacturing facility and Camp Hall business park (I-26, exit 189).

• According to the South Carolina Department of Transportation’s Interchange Justification Report prepared by Stantec Consulting Services, in addition to the Volvo manufacturing facility, up to 10 million square feet of supporting industrial warehouse and manufacturing development is expected to be constructed in the Camp Hall business park for Volvo-related suppliers and manufacturers. Excluding the estimated 4,000 Volvo

employees, the comprehensive report estimated one employee per 1,000 square feet of space for a total of 10,000 employees in Camp Hall business park.

A total of 14,000 people are projected to work in the Camp Hall business park.


Ridgeville Siteplan for

In June 2018, Exeter PropertyGroup announced it wouldbuild an 800,000 square footindustrial distribution warehouseIn Camp Hall.

site


Ridgeville Trade Area Charleston MSAand 1.25 miles to the south, Ridgeville Industrial Campus


Ridgeville Industrial Park

A lot of business activity and planned growth for the area. Residential developments launched south of I-26 in this submarket by several well-known

Charleston area developers. Major infrastructure improvements in the area (utilities, roads, new interstate interchange) to

accommodate the expected rapid growth. History of manufacturing and distribution clusters when a major auto manufacturer opens a new

plant (BMW in Spartanburg (SC), Michelin in Spartanburg (SC), Hyundai in Montgomery (AL), Honda in Lincoln (AL), Toyota in Huntsville (AL), Nissan in Franklin (TN), and Volkswagen in Chattanooga (TN) to name a few.Creates increased demand for industrial distribution warehouses. Increased need for housing for the new workforce.Demand for retail services for the new population cluster.

• Real estate developers will eventually build the assets to capitalize on the expected growth in this area.



Multifamily Development in Ridgeville area of greater CharlestonProject Summary: Proposed multifamily development off I-26 & Hwy 27 (exit 187) approx. 0.1 miles from I-26 interchange and 2 miles from the new 2.1 million square foot Volvo manufacturing facility that is expected to employ 4,000 people. Expectations are for 14,000 people to work in the business park in the near future.


Multifamily Development in Ridgeville area of greater Charleston

Business Plan

Apartment community approximately 2 miles from the new 2.1 million square foot, $1.5 billion Volvo manufacturing facility and Volvo training campus that will employ 4,000 people and open in 2019.

Close proximity to the new 6,800-acre Camp Hall business park anchored by the Volvo facility that will eventually include 10 million square feet of industrial warehouses and employ 14,000 people.

Limited to no competition for the development product in this trade area, as next closest competition is 7 miles.

First mover advantage as there are no planned multifamily communities in this trade area.

Competitive advantage because most all land tracts in the area do not permit multifamily, but this one tract under developer’s control does permit the use.

Developed to meet the housing needs of the workforce.


Metric Data Point*Submarket Vacancy 8.2%# of Properties in Competitive Set 6Submarket Avg. Effective Rent $1,180 / monthSubmarket Avg. Effective Rent PSF $1.16 / month


Ridgeville Trade Area Multifamily Metrics

*CoStar report September 2018 for the Ridgeville-Summerville submarket.

When properties > 10 years old (4 properties) are eliminated from the competitive set the avg. effective rent increases to $1.27psf.

Currently, no planned multifamily in the construction / development pipeline for the Ridgeville area.

Multifamily Development DetailDeveloper Ecstatic Properties, LLCOwner / Borrower EP Ridgeville, LLCCounty BerkeleyAddress 1050 Old Gilliard Rd, Ridgeville, SC 29472TMS 175-00-00-008Acres 27.6, usable ~ 24Site Control Under contractLand Price $1,600,000Land Price / Acre $66,667 (usable)Zoning RDU & Flex1Traffic Count 49,100 (I-26)Proposed Units 330*Unit Mix (1,2, and 3 rooms) 56% one room, 32% two rooms, and 12% three rooms)General Contractor Summit Contracting Group, Inc


* Subject to change.

Financing SummaryEstimated Project Cost $41,721,848 (~ $126,430 / unit)Loan Size 50% LTC @ 6% IOEquity Requirement 50%Estimated Effective Rent PSF (month) $1.27Estimated Vacancy 7%Months for Stabilization 16Estimated Operating Costs PSF (annual)* $4.83 (garden style, non-luxury)Effective Rent Annual Growth 2.5%Annual Expense Inflation 2.0%Unlevered Yield (Yr 3) 7.7%IRR (10-year @ 6.5% cap rate) 17%Equity Multiple (10-year) 2.5x


* CoStar report for September 2018. Operating expenses for apartments in the Charleston market.

Sources of Project Capital


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Capital %

Capital Stack

Equity

Preferred Equity

Loan

Sources of Capital Amount* % of TotalSr. Loan $21,000,000 50.3%Preferred Equity 19,500,900 46.7%Common Equity (Developer) 1,220,948 2.9%

TOTAL CAPITAL $41,721,848 100.0%* Subject to change.

Equity Incentive Through Opportunity Zone ProgramThe Tax Cuts and Jobs Act of 2017 that was passed by Congress and signed into law included a provision that encourages investment in designated low income communities called “Opportunity Zones”. The provision incentivizes investment in Opportunity Zones through the deferral and eventual partial forgiveness of realized capital gains taxes FROM ANY ASSET SALE OR CLASS. There are three primary benefits to equity partners of Opportunity Zone projects:

1. Deferral of gain from other investments into the project.a. Gain must be invested into the project within 180 of realization of such gain.b. Tax deferral until the earlier of December 31, 2016, or when the interest in the project is sold.

2. Reduction of deferred capital gains taxes.a. If the investment is held for 5 years the original capital gains are reduced by 10%.b. If the investment is held for 7 years the original capital gains are reduced by 15%.

3. Complete elimination of gain on equity investment in project.a. If the investment is held for 10 years then capital gains taxes from the sale of an Opportunity Zone investment

would be zero.


Hold Period (assumes 7% expected return) After-Tax Value Net BenefitInitial Capital Gain to Invest = $1 million

5 years – Traditional Stock Portfolio $995,7395 years – Opportunity Zone Fund $1,092,544 $96,805

7 years – Traditional Stock Portfolio $1,113,7437 years – Opportunity Zone Fund $1,259,305 $145,562

10 years – Traditional Stock Portfolio $1,323,57010 years – Opportunity Zone Fund $1,764,851 $441,281


Opportunity Zone Net Benefit1

- - - - - - -1.) See page 26 for explanation of calculation.

Developer & Market Experience

Development Track Record John D. Cattano & John J. Dukes collectively have over 50 years of real estate development experience and have developed

over 3.8 million square feet of real estate encompassing a wide array of real estate assets. Messrs. Cattano and Dukes have a comprehensive understanding of the development process for all types of sectors within real estate.

Managed 8 hotel developments in SC & GA comprising 910 rooms and 333,000 square feet at a total cost of $45 million.

Managed the development of The Landings on Skidaway Island, a 6,000 acre island with 6 golf courses, 2 marinas, and 5 clubs near Savannah, GA that includes over 3,500 homes. The Urban Land Institute recognized this project with its Award for Excellence as one of the finest residential

developments in the country.

Mr. Cattano earned a Bachelor of Arts Degree in Economics and History at Hampden-Sydney College, and a Master’s Degree in Business Administration from the Babcock Graduate School of Management at Wake Forest University.

Mr. Dukes earned a Bachelor of Arts Degree in Economics from the University of Georgia where he also played basketball. Mr. Dukes served in the U.S. Air Force as a medic.


Transparency Annual financial audit.

Real-time project and financial data through online portal.

Monthly project status reports and operating financial reports.


Important DisclosuresTHIS BUSINESS PLAN IS SUBMITTED ON A CONFIDENTIAL BASIS ONLY FOR CONSIDERATION BY A LIMITED NUMBER OF SELECTED PROSPECTIVE PARTNERS WHO MAY PARTICIPATE IN CREATION OF AN ENTITY TO OWN AND OPERATE ONE OR MORE PROPERTIES. THE ENTITY HAS NOT BEEN FORMED, AND INVESTMENT SECURITIES DO NOT EXIST AND ARE NOT BEING OFFERED.

THIS BUSINESS PLAN IS FOR THE REVIEW AND CONSIDERATION ONLY BY THOSE SPECIFIC PERSONS TO WHOM IT HAS BEEN DISTRIBUTED, AND IT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, NOR MAY ANY OF ITS CONTENTS BE DISCLOSED TO ANYONE ELSE. THIS BUSINESS PLAN DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES. ONLY THOSE SPECIFIC PERSONS WHOSE SUITABILITY HAS BEEN PREVIOUSLY ESTABLISHED WILL BE PERMITTED TO ENTER AN AGREEMENT TO FORM A LIMITED LIABILITY COMPANY OR OTHER ENTITY AND TO PARTICIPATE IN THIS BUSINESS VENTURE.

THIS BUSINESS PLAN HAS NOT BEEN FILED WITH OR REVIEWED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES OFFICE. NO SECURITIES ARE BEING OFFERED HEREUNDER. EACH PROSPECTIVE PARTNER SHOULD PROCEED UNDER THE ASSUMPTION THAT HE MUST BEAR THE ECONOMIC RISK ASSOCIATED WITH HIS PARTICIPATION FOR AN INDEFINITE PERIOD, BECAUSE THESE BUSINESS INTERESTS MAY NOT BE FREELY RESOLD AND BECAUSE THERE WILL BE NO READY MARKET FOR THEM.

THESE LLC INTERESTS WILL BE SUBJECT TO SPECIFIC RESTRICTIONS ON TRANSFERABILITY AND RESALE UNDER THE OPERATING AGREEMENT OF THE ENTITY TO BE FORMED.

ALL STATEMENTS, ESTIMATES, AND OTHER IMPLICATIONS AS TO FUTURE OPERATIONS, REVENUE, CASH FLOWS, AND NET INCOME OF THE TO-BE-FORMED ENTITY ARE BASED ON THE BEST ESTIMATES OF THE DEVELOPER. ADDITIONAL INFORMATION OR CLARIFICATION CAN BE OBTAINED BY CONTACTING THE DEVELOPER AT 803-381-5850.

PROJECTIONS OF OPERATIONS AND OTHER FINANCIAL DATA INCLUDED HEREIN WERE NOT PREPARED WITH A VIEW TOWARD PUBLIC DISCLOSURE OR COMPLIANCE WITH ANY SECURITIES REGULATIONS. THEY HAVE NOT BEEN COMPILED OR REVIEWED OR AUDITED BY INDEPENDENT ACCOUNTANTS. THE PROJECTIONS WERE BASED UPON A NUMBER OF ASSUMPTIONS WHICH MAY OR MAY NOT PROVE TO BE CORRECT. ALL THE FINANCIAL DATA ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES.


Important DisclosuresEVEN THOUGH THIS IS NOT AN OFFERING OF SECURITIES, IT IS ANTICIPATED THAT THE DEVELOPER WILL ADHERE TO STANDARDS SIMILAR TO THOSE REQUIRED UNDER REGULATION D OF THE SECURITIES AND EXCHANGE ACT, AS RELATE TO AN "ACCREDITED INVESTOR." THE OPPORTUNITY TO PARTICIPATE AS AN EQUITY PARTNER IN THE ENTITY TO BE CREATED WILL ONLY BE OFFERED TO PERSONS BELIEVED TO BE SOPHISTICATED INVESTORS CAPABLE OF EVALUATING THE BUSINESS OPPORTUNITY AND FULLY ABLE TO AFFORD A COMPLETE LOSS OF ANY INVESTMENT IN THE NEW ENTITY. PARTICIPATION IN THIS VENTURE SHOULD BE CONSIDERED HIGHLY SPECULATIVE.

PROSPECTIVE EQUITY PARTNERS ARE NOT TO CONSTRUE ANYTHING CONTAINED IN THIS BUSINESS PLAN AS LEGAL, BUSINESS, OR TAX ADVICE. EACH PROSPECTIVE PARTNER SHOULD CONSULT HIS OWN ATTORNEY, BUSINESS ADVISOR, AND TAX ADVISOR AS TO THESE MATTERS.

ANY PROSPECTIVE EQUITY PARTNER SHOULD REALIZE THE OPPORTUNITY ZONE PROGRAM AS SPECIFIED BY LAW AND ADMINISTERED BY THE US DEPARTMENT OF TREASURY AND THE IRS IS A NEW PROGRAM AND RULES AND REGULATIONS MAY CHANGE AT ANY TIME THAT MAY ADVERSLY IMPACT THE MISSION OF THE DEVELOPMENT SPONSOR.

Target Gross Returns are projected without taking into account projected management fees and Incentive Allocations payable to PCD, the effect of which are expected to be material on investor returns. There is no assurance that these target returns or that the Developer’s investment objective will be achieved. Please see the Important Disclosures and Disclosure Statement for important information regarding target returns and projections. Prospective investors should bear in mind that the hypothetical targeted performance presented herein is not necessarily indicative of future results. Actual gross returns, and individual investors participating directly or indirectly in the projects, may vary significantly from the targeted returns set forth herein. Such hypothetical targeted performance is neither a guarantee nor a prediction or projection of actual future returns.

In calculating the target returns contained herein, PCD has made the following assumptions: (i) a two-year development period for each investment and two years of lease-up and stabilization thereafter; (ii) and a 10-year hold period.


Opportunity Zone Net Benefit Calculation (page 20)

The calculations show an investor’s potential after-tax returns under different scenarios, assuming an investment of capital gains prior to December 31, 2019, a 10 year holding, annual investment appreciation of 7%, and a long-term capital gains tax rate of 23.8% (federal capital gains tax of 20% and net investment income tax of 3.8%), only taking into account tax at a federal level (not state). Note, however, that the performance assumptions shown are for illustrative purposes only, and are not intended to reflect the actual experience of any individual investor.

The calculations for the standard stock portfolio are based on rolling over capital gains equal to $1 million, at an initial tax of 23.8% (using the same assumptions described above), into a standard stock portfolio, the remaining $76,200 of which then appreciates at a compounding return of 7%. At the end of each holding period, the investment in the standard stock portfolio is assumed to be sold and long-term capital gains at a tax rate of 23.8% paid on the capital gains from the investment in the standard stock portfolio.

The five-year hold calculations for the Opportunity Fund are based on rolling over capital gains equal to $1 million, at an initially deferred tax rate of 0%, into an Opportunity Fund, with the entirety of the $1 million then appreciating at a compounding return of 7%, until the fifth year of the hold, at which time the initially deferred tax is reduced by 10% and the net amount is taxed at a rate of 23.8%. In addition, at the end of the holding period, when the investment is assumed to be sold, long-term capital gain at a tax rate of 23.8% is paid on the gains or profits from the investment in the Opportunity Fund itself.

The seven-year hold calculations for the Opportunity Fund are based on rolling over capital gains of $1 million, at an initially deferred tax of 0%, into an Opportunity Fund, with the entirety of the $1 million then appreciating at a compounding return of 7%, until the seventh year of the hold, at which time the initially deferred tax is reduced by 15% and the net amount is taxed at a rate of 23.8%. In addition, at the end of the holding period, when the investment is assumed to be sold, long-term capital gain at a tax rate of 23.8% is paid on the gains or profits from the investment in the Opportunity Fund itself.

The ten-year hold calculations for the Opportunity Fund are based on rolling over gains of $1 million, at an initially deferred tax of 0%, into an Opportunity Fund, with the entirety of the $1 million then appreciating at a compounding return of 7%, until December 31, 2026, at which time the initially deferred tax is reduced by 15% and the net amount is taxed at a rate of 23.8%, effectively reducing the principal invested in the opportunity fund accordingly. Thereafter, returns continue to compound at 7%. At the end of the tenth year of the holding period, the investment in the Opportunity Fund is sold and the capital gains on the investment in the Opportunity Fund itself is taxed at a rate of 0%.


Important Disclosures

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