PHASE 1 SUMMARY
Project requires Debt and Equity from investor and lender. Phase 1 of the redevelopment will occur along the Scott Street corridor, the new University Place Apartments provide spacious one and two-bedroom open floor plan units that are ideal for students and young families. Residents can access the light rail by skywalk connections that lead to the iconic pedestrian bridge across Scott Street which connects the University of Houston, University Place mixed use and apartments in a cohesive manner. This phase can be developed as 1 project with apartments and mixed use or 2 individual projects and was designed to allow for phasing and ownership flexibility.
Market rate apartments illustrates the project vision that coincides with financial model and associated capital stack, returns on invested capital and deal structure. (Financial analysis, architecture, & urban design by LAI Design Group)
Mixed-use commercial illustrates the project vision that coincides with financial model and associated capital stack, returns on invested capital and deal structure.(Financial analysis, architecture, & urban design by LAI Design Group)
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While IRR summaries for each phase are not additive to suggest a 59% return, however the conclusion points to a handsome return for each phase individually at 31% for apartments and 28% for the mixed use commercial phase respectively. These returns are enhanced because smaller amounts of capital are deployed in phases, which allow the developer to complete a smaller project sooner and achieve cash flows and rent stabilization between phases. This scenario compares with doing both phases at one time and enduring a longer construction period with greater capital outlay and no income for 36-42 months vs 18-24 months by staggering the phases. The name of the game in real estate finance is all about the “time value of money” to achieve the greatest returns. This can be tricky with mixed use projects, which is why it’s critical to be able to dissect an overall master plan to ensure each segment can stand on its own with respect to marketability, financing and practical methods of construction.
Mixed use projects are not for everyone because of the level of development sophistication and experience required. As you can tell by the previous discussion of scope and complexity there are many moving parts with a mixed use project not the least of which is property management, financing, and phasing. When embarking on any development project the best first step is to work with an experienced design firm, reputable general contractor, legal counsel, and tax specialists. The other consideration is to bring your general contractor into the conversation sooner rather than later to assist with construction budgeting and value engineering as necessary.
Kenneth Puncerelli is the CEO of LAI Design Group with offices in Denver, Colorado and Houston, Texas. The firm provides architecture, planning & entitlements, visual media, landscape architecture, real estate advisory and development management services. LAI Design Group specializes in affordable housing, mixed use/commercial, master planned communities, active adult and resort/hospitality projects. Mr. Puncerelli is a licensed design professional and holds an MBA as well as a Master of Science in Finance with a specialization in Real Estate Finance. For more information about LAI Design Group, please call 303-734-1777 or visit our website at www.laidesigngroup.com