Real estate review assignment due tomorrow

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Trenton_FinalProjectREE67153.pdf

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Final Project – Trenton, FL – Small Town Retail – McDonalds and Family Dollar

BTS

Real Estate Development – REE 6715

Dr. William Hardin

Note: it would be hard to get all the graphics in this one and site plan. A

member of this group had access to site plans and some renderings.

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Table of Contents

1. Executive Summary................................................................................................................. 3

2. Property Summary ..................................................................................................................5

3. Market Analysis.......................................................................................................................11

4. Comparable Sales....................................................................................................................13

5. Cost Structure..........................................................................................................................14

6. Returns - Projections............................................................................................................... 13

7. Investment Decision.................................................................................................................17

8. Exhibits..................................................................................................................................... 18

1. Executive Summary

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The proposed project is a built to suit for McDonald’s and Family Dollar that would entail

two standalone buildings for each tenant on a common parcel. The small town retail

partnership gives the corporations the ability to enter a small town and utilizing one

another as a traffic generator. Trenton is a submarket of Gainesville and there is little

competition for McDonalds as there is only one other local burger restaurant and there

is a Dollar General on the outskirts of town competing with Family Dollar.

The property is located on the north east

corner of 1 st St and State Road 26, one

block east of US 129. It is the best

positioned site in the trade area with all

the sites at the intersection of US 129 and

SR 26 developed. The parcel is

approximately 58,506 sf (1.35 acres), site

frontage 296 feet.

The site is very well located along the SR 26 corridor, serving the Trenton market and

moving traffic to Gainesville to the east. Access is provided by full access drives on

both SR 26 and NE 2 nd

St. Parking is adequate with the addition of the on street parking

locations to the west and north of the parcel.

McDonald’s Information on the Small Town Retail Program for Developers

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2. Property Summary

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Property Specific Attributes

The proposed development is situated in a market that both McDonald’s and

Family Dollar have identified in their market plans as desirable however lower volume

sales due to the small town population. There is a need for the retailers after reviewing

the trade area market in the 2 mile and 10 minute trade area. Due to the lower

population there is minimum convenience retailers and to do any shopping or fast food

the decision is to commute east to Gainesville or south to Chiefland. This location will

be able to pull customers from further than the 10 minute ring without impacting any of

the existing McDonald’s or Family Dollars as most are concentrated in Gainesville.

There is an established population base in Trenton and SR 26 and US 129 are the main

thoroughfares in the town for commuters. These two retailers will be complimentary and

a great addition to the area for the local customers.

Zoning

The zoning for the property is CG-1 and allows for the retail uses as proposed.

Zoning for Trenton McDonalds/Family Dollar

 Zoning: CG – Commercial General

 Setbacks: Front – 20’, Side – 10’, Rear – 15’

 Height: 35’

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 Landscape Buffer: 10’ along the side yard and rear

 Parking: 1 space for every 150’ of non-storage floor area

 Maximum Building Lot Coverage: In addition to meeting the setbacks and

parking requirements, no structure shall exceed a 1.0 floor area ratio

Real Estate Deal

The property is under contract for $132,500 and the construction cost for both

tenants is $1,838,266 for building and site and each tenant completes the interior with

their own finishes, equipment and furnishings. Both corporate leases are being

presented to their management teams and McDonald’s lease is $60,000/year for the

base of 10 years and 10% increases every 5 years. There are six option periods, five

years each with a total potential of 40 year term. Family Dollars lease begins at

$80,000/year with the same increases and options.

The leases for each tenant states that interior improvements are the tenants’

responsibilities for maintenance and the Landlord is responsible for structural and

HVAC repairs over and above $500 however the tenant’s must show they have a

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contract with a licensed HVAC contractor for quarterly maintenance. Real estate taxes

are prorated by the parcel split and tangible taxes are the responsibility of each tenant.

The tenants do pay common area maintenance to the landlord to maintain the common

parking lot and landscaping.

Property Location: Northeast corner of SR 26 and US 129

Land Price: $132,000

Construction Costs:

McDonald’s Building: 2,800 sf @ $140 psf

Family Dollar Building: 8,000 sf @ $75 psf

General Requirement and Site costs: $10 psf

Soft Costs: $35,000

Existing McDonald’s and Family Dollars in Gilchrist and Alachua Counties

Conceptual Site Plan

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Aerial Overlay of Site plan

Exterior Rendering of McDonald’s w/Drive Through and Family Dollar

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McDonald’s Floorplan

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3. Market Analysis

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Demand Drivers

Demographics

Gilchrist County, FL

Data source: U.S. Department of Commerce. 2012. Census Bureau, Population Division, Washington,

D.C.

Page 2

Components

Components of Population Growth, 2000-2012

Change 2000-

2012

Population Growth (2000 - 2012) 2,275

Avg. Annual Population Change (Natural Change & Net Migration) 219

Avg. Annual Natural Change (Births & Deaths) 27

Avg. Annual Births 188

Avg. Annual Deaths 161

Avg. Annual Net Migration (International & Domestic) 200

Avg. Annual International Migration 6

Avg. Annual Domestic Migration 194

Avg. Annual Residual -5

Percent of Population Growth, 2000-2012

Avg. Annual Natural Change (Births & Deaths) 12.0%

Avg. Annual Net Migration (International & Domestic) 90.2%

•

This page describes various components of population change and total population growth (or decline). Total population growth (or decline) is the sum of

natural change (births & deaths) and migration (international & domestic).

How have the components of population changed?

From 2000 to 2012, migration contributed

to 90% of population growth.

From 2000 to 2012, population grew by

2,275 people, a 16% increase.

From 2000 to 2012, natural change

contributed to 12% of population growth.

Data Sources: U.S. Department of Commerce. 2012. Census Bureau, Population Division, Washington, D.C.

* The Census Bureau makes a minor statistical correction, called a "residual" which is

shown in the table above, but omitted from the figure. Because of this correction, natural

change plus net migration may not add to total population change in the figure.

188

(161)

194

200 219

(200)

(150)

(100)

(50)

100

150

200

250 B

ir th

D e

a th

N a

tu ra

l C

h a n

g e

D o

m e

s ti c M

ig ra

ti o

In te

rn a

ti o

n a l M

ig ra

ti o

M ig

ra ti o

P o

p u

la ti o n

G ro

w th

a tu

ra l &

M ig

ra ti o

n )

Average Annual Components of Population Growth*, Gilchrist County FL, 2000-2012

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City of Trenton

Page 7

Industry Sectors

•

Data Sources: U.S. Department of Commerce. Multiple Years (See Data Sources & Methods page). Bureau of Economic Analysis, Regional Economic

Information System, Washington, D.C. Table CA25.

From 1970 to 2000, jobs in government

jobs grew from 311 to 1,159, a 273%

increase.

How has employment by industry changed historically?

This page describes historical employment trends by major industry category (non-services related, services related, and government) and by industry.

Employment includes wage and salary jobs and proprietors. The employment data are organized according to the Standard Industrial Classification (SIC)

system and reported by place of work.

From 1970 to 2000, jobs in services

related industries grew from 279 to

2,047, a 634% increase.

From 1970 to 2000, jobs in non-services

related industries grew from 498 to

1,167, a 134% increase.

In 2000 the three industry sectors with

the largest number of jobs were

government (1,159 jobs), services (1,059

jobs), and farm (611 jobs).

From 1970 to 2000, the three industry

sectors that added the most new jobs

were government (848 new jobs), retail

trade (352 new jobs), and construction

(216 new jobs).

200

400

600

800

1,000

1,200

1,400

1 9 7

1 9 8

1 9 9

2 0 0

Employment by Industry, Gilchrist County FL

Services Retail trade

Government Manufacturing

Construction Finance, ins. & real estate

Agricultural services Trans. & public utilities

Wholesale trade Farm

Mining

500

1,000

1,500

2,000

2,500

1 9 7 0

1 9 7 1

1 9 7 2

1 9 7 3

1 9 7 4

1 9 7 5

1 9 7 6

1 9 7 7

1 9 7 8

1 9 7 9

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

Employment by Major Industry Category, Gilchrist County FL

Services related Non-services related Government

Page 7

Industry Sectors

•

Data Sources: U.S. Department of Commerce. Multiple Years (See Data Sources & Methods page). Bureau of Economic Analysis, Regional Economic

Information System, Washington, D.C. Table CA25.

From 1970 to 2000, jobs in government

jobs grew from 311 to 1,159, a 273%

increase.

How has employment by industry changed historically?

This page describes historical employment trends by major industry category (non-services related, services related, and government) and by industry.

Employment includes wage and salary jobs and proprietors. The employment data are organized according to the Standard Industrial Classification (SIC)

system and reported by place of work.

From 1970 to 2000, jobs in services

related industries grew from 279 to

2,047, a 634% increase.

From 1970 to 2000, jobs in non-services

related industries grew from 498 to

1,167, a 134% increase.

In 2000 the three industry sectors with

the largest number of jobs were

government (1,159 jobs), services (1,059

jobs), and farm (611 jobs).

From 1970 to 2000, the three industry

sectors that added the most new jobs

were government (848 new jobs), retail

trade (352 new jobs), and construction

(216 new jobs).

200

400

600

800

1,000

1,200

1,400

1 9 7

1 9

7 5

1 9 7

1 9 8

1 9

8 5

1 9 8

1 9 9

1 9

9 5

1 9 9

2 0 0

Employment by Industry, Gilchrist County FL

Services Retail trade

Government Manufacturing

Construction Finance, ins. & real estate

Agricultural services Trans. & public utilities

Wholesale trade Farm

Mining

500

1,000

1,500

2,000

2,500

1 9 7 0

1 9 7 1

1 9 7 2

1 9 7 3

1 9 7 4

1 9

7 5

1 9 7 6

1 9 7 7

1 9 7 8

1 9 7 9

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9

8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9

9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

Employment by Major Industry Category, Gilchrist County FL

Services related Non-services related Government

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4. Comparable Sales

Credit Rating – Moody’s A2

Source- Calkain Research

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Credit Rating – Moody’s Baa3

Source- Calkain Research

Since both of these tenants are investment grade, the cap rate is established by the

strength of corporate lease guarantor and to a lesser extent location. A blended selling

cap rate of 6% is the selling market cap rate for this tertiary market development.

5. Cost Structure

Construction Costs

Based on previous small town retail projects and McDonald’s average costs and

utilizing their suppliers to obtain price breaks due to their negotiated bulk prices

for materials the hard costs for the McDonald’s building is $140 per SF or

$392,000. The Family Dollar building is a metal building with exterior stucco and

the cost is much lower at $75 per SF and $600,000 for the hard costs of the

building.

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Contingency

Due to unforeseen circumstances, a 5% ($80,603) contingency is built into the

budget should there be any additional costs that come up during the construction

of the project.

Land

Acquisition cost of the land is contracted for $132,000 for 1.35 acres. There is a

historic building on the property and the cost of the transporting the home was

factored into the price negotiations.

General Requirements and Site Work

The property is fairly clear however there is a historical structure that will need to

be moved and a large oak removed and fees paid into a tree mitigation fund.

Bringing utilities to the property and separately metering for each tenant have

been accounted for and this breaks down to $10 per SF or $585,060.

Soft Costs

Engineering costs for this project are a flat fee of $35,000 with our preferred firm.

This is a fixed negotiated costs as these types of project are straight forward and

we have done multiple projects throughout the state.

Permitting Costs

The permitting fees in the City of Trenton are $25,000.

Impact Fees

The impact fees are assessed by the amount of traffic this use will bring

additionally to the road way systems. The city has assessed the project $40,000.

Project Management

A 5% ($80,603) project management fee is included to the costs for the general

contractor supervision of the project.

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6. Returns and Projections

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Returns

7. Investment Decision

As a preferred developer within the McDonald’s Small Town Retailer program

there is little risk involved in the decision to move forward with the project. The

territory is assigned and the company decides dictates the growth market and the

partners they will move forward with in these deals. Once the management

committee signs on the location and site plan, a lease is prepared for each

retailer and we move forward with planning and permitting the development.

The most difficult part is to keep the change orders down and keep the

construction costs as close to the prototypical as possible. The local franchisee is

involved in the build out and that can become costly if the project manager does

not keep firm. These costs should be billed directly to the franchisee as

McDonald’s does not vary from their signed contract unless there is an

unforeseen issue on the job site that will need immediate repair. Family Dollar’s

buildout is much more straightforward as there is no franchisee involved and they

want turnover once the vanilla shell is complete and they complete the buldout.

As we have done many of these small town deals, our typical financing structure

is 80% LTC and market interest rates are 4.25% with a 30 year amortization.

This would amount to an 11.69% return based on our cash flow after debt service

of $46,060 annually.

However, due to the strong cap rates of both tenants we may flip this property in

year 3 as this these cobranded properties need a couple of years to mature and

work out any issues before putting them on the market. McDonald’s cap rate is

trading at 4.5% in most sales and Family Dollar is just under 8% and we would

market this property at a blended cap rate at 6%. The sale price at this cap is

$2,333,333 and after the fees the IRR is 26% for this project.

The largest hurdle to getting this deal completed is being selected as the retailers

preferred developer and we maintain this status by delivering a product they are

happy with and we continue to look forward to a long and profitable relationship.

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8. Exhibits – Demographic and Income Profiles in the 5-10-15 minute drive times

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