Hogan Building 5 Year CFAW

Cash Flow Analysis:  The following are highlights from the Hogan Building's 5 Year CFAW.  The complete CFAW is available upon request.  Just leave a comment with the e-mail address where it should be sent.

Initial Equity Investment: $464,897.98

Mortgage Amount: $1,315,749

Terms: 7% interest rate / 15-yr Term & Amort / 2% Loan Fees

Potential Rental Income: $393,600 (Yr 1); $405,408 (Yr 2); $417,570 (Yr 3); $430,097 (Yr 4); $443,000 (Yr 5)

Vacancy Rate: 12% (Yr 1); 5% (Yr 2 - 5)

Operating Expenses: 49.5% of Gross Operating Income

NOI: $181,228 (Yr 1); $200,996 (Yr 2); $207,026 (Yr 3); $213,237 (Yr 4); $219,634 (Yr 5)

Sale Price EOY 5: $1,500,000

Internal Rate of Return	Before Tax IRR	After Tax IRR
Initial Investment	-$464,897.98	-$464,897.98
Cash Flow Year 1	$39,312.45	$27,566.53
Cash Flow Year 2	$59,080.48	$41,919.56
Cash Flow Year 3	$65,110.37	$45,445.06
Cash Flow Year 4	$71,321.15	$49,034.17
Cash Flow Year 5	$398,417.77	$374,637.58
Internal Rate of Return	7.8507%	3.501%

Facilities Management -- Operating Budget

     Operating the Property: Proper management of the facilities will be key in maintaing tenant satisfaction and renewing leases.  To ensure profitability, the premises will need to be managed in accordance with a budget.  The operational budget for management of the Hogan Building follows:

Hogan Building Annual Operations Budget

Janitorial                                           $10,000

Security                                            $45,000

Semi-Annual Window Cleaning      $  7,500

Trash Removal                                 $12,000

Repairs / Maintenance                     $35,000

Advertising                                      $  6,000

RE Taxes                                         $51,900

Insurance                                         $15,000

Management Fee                             $  5,000

Cap Ex Contribution                       $  7,500

Total                              $194,900

Marketing & Leasing

     Pitching the Property:  Properly structuring the marketing and leasing of the property is crucial to the timeliness and consistency of the performance of the property.  This will be especially true for the Hogan Building Project because of the existence of retail, office and residential leases.

 

     Marketing Strategy: The Hogan Building marketing plan will be to highlight its location and the opportunities and conveniences its location affords business, retail and residential tenants alike.  Being located in the central business district blocks from the Convention Center ensures consistent foot traffic for the retail tenants and provides convenient access to the business community and the seat of City and County Government for the office tenants.  Residential tenants will be drawn to the areas vibrant nightlife and world class dining, which is only blocks away.  The Hogan Building's sustainable features will allow the building to be marketed as "eco-friendly," and/or "environmentally responsible."  In short, the Hogan Building will be marketed as a great place to do business and call home. 

      Marketing Budget:  $10,000 shall be alloted for use in production of marketing brochures and materials and placement of building advertisements in the electronic medium.  The Hogan Building shall have its own web-site created that allows interactive tours of the facilities and surrounding areas. 

The building will also have its own Facebook page where tenants and prospective tenants can share information about their building experiences.  It is not anticipated that rental discounts will be necessary to lease up the Hogan Building.  Regardless, in case needed, an additional $5,000 has been included in the marketing budget for rental discounts in the first 6-months of the building's operations.  The total marketing budget leading up and to and through the first six months of building operations is $15,000.  

      Leasing Commissions: Compensation structure for the leasing agents will vary by property type.  For all leases, the agent will receive a 5% commission.  The payout for that 5% shall vary by property type. 

     Retail:  For the retail spaces, the lease commission shall be payble half at the time the lease is signed and half when the tenant moves into the space. 

     Residential: 1-year leases shall pay 40% of the lease commission when the lease is signed.  The remaining 60% shall be placed in an escrow and paid to the agent in equal shares on the first of each of the 12 months of the lease as long as the tenant remains.  Should the tenant vacate the premises prior to completion of the lease term, the agent does not receive the balance of the commission in the escrow account.  Instead it reverts to the owner to be used in filling the space with a new tenant.  This will motivate the leasing agent to complete due diligence in qualifying prospective tenants.     

      Office: 5-year leases shall pay 50% of the lease commission when the lease is signed. The remaining 50% shall be placed in an escrow and paid to the agent in equal shares on the anniversary date of the lease for each of the 5 years of the lease as long as the tenant remains. Should the tenant vacate the premises prior to completion of the lease term, the agent does not receive the balance of the commission in the escrow account. Instead it reverts to the owner to be used in filling the space with a new tenant. This will motivate the leasing agent to complete due diligence in qualifying prospective tenants.

Lease Highlights: All leases shall be of the base rent variety.  Highlights for each of the lease types follow:

Residential: This shall be a standard residential lease where tenant pays electricity, cable, water, internet, etc., separately.  Assuming all payments during the lease term are made timely, tenant shall have the option to renew the lease 30-days prior to expiration.  The request to renew must be in writing.  Renewal shall be for a term of 1-year.  Renewal rate shall be at a 5% increase from the original rent rate or then previling market rents within a 2-mile radius for similar type residential properties -- which ever is higher.  Building security services and janitorial services to building common areas are included in the lease.  Recycling shall be enouraged, but not required of residential tenants.

Retail:  A percentage of sale rents arrangement was considered and declined.  The Hogan Building owners prefer to be strictly in the real estate business and not a hybrid real estate/retail hybrid.  There shall be no co-tenancy clause.  Within the lease term, annual rents shall increase 3%.  If any retail tenant vacates the premises, the remaining retail tenants shall have the right of first refusal on space contiguous to their own.  This right must be exercised in writing within 15 days of the tenant being notified of the vacancy.  Should the existing tenant exercise this right, the rent on the additional space shall be at then prevailing market rates.

        Assuming all payments during the lease term are made timely, tenant shall have the option to renew the lease 120-days prior to expiration. The request to renew must be in writing. Renewal shall be for a minimum term of 3-years, but may be longer if the tenant and owner agree. Renewal rate shall be at a 5% increase from the original rent rate or then previling market rents within a 2-mile radius for similar type retail properties -- which ever is higher. Building security services and janitorial services to building common areas are included in the lease. Basic daily janitorial services such as emptying the trash, vacuming, sweeping the floors and light dusting will be included as part of lease. 

Recycling shall be required of retail tenants.  Retail tenants that fail to recycle glass, plastic, and cardboard shall receive one verbal warning.  A second violation will receive a written reprimand and notice to cure.  Third and any future violations shall be sanctioned with  $100 per incident fine that will be payable within 10 business days.

     Office:  Office lease rates shall increase 3% per year within the lease term.  There shall be no co-tenancy clause. However, the owner agrees not lease to another business enterprise that is in the same industry as current tenants without the current tenant's approval.  For example, if a CPA firm is a current tenant, then vacant space will not be leased to a CPA firm that would compete with the existing tenant CPA.  If any office tenant vacates the premises, the remaining off tenants shall have the right of first refusal on space contiguous to their own. This right must be exercised in writing within 30 days of the tenant being notified of the vacancy. Should the existing tenant exercise this right, the rent on the additional space shall be at then prevailing market rates.

Assuming all payments during the lease term are made timely, tenant shall have the option to renew the lease 180-days prior to expiration. The request to renew must be in writing. Renewal shall be for a term of 5-years. Renewal rate shall be at a 5% increase from the original rent rate or then previling market rents within Fort Worth's Central Business District for Class B Office Space -- which ever is higher. 

Building security services and janitorial services to building common areas are included in the lease. The security services include premises surveillance and controlled access to the premises 24-hours a day.  Basic daily janitorial services such as emptying the trash, vacuming, sweeping the floors and light dusting will be included as part of lease. Recycling shall be required of office tenants.  Office tenants that fail to recycle glass, plastic, and cardboard shall receive one verbal warning. 

A second violation will receive a written reprimand and notice to cure. Third and any future violations shall be sanctioned with $250 per incident fine that will be payable within 10 business days.  Should tenant violate this provision of the lease 7 times within any 12-month period, owner shall have the right to terminate the lease for cause upon 5 days written notice.

Tax Benefits of Sustainable Features

     EPAct:  In 2005, the US Congress passed the Energy Policy Act of 2005 ("EPAct").  The act incentivised energy efficient construction and "retrofitting" of existing buildings.  The most coomonly utilized provision under EPAct is the Energy Efficient Commercial Buildings Deduction.

     Full Deduction:  The Energy Efficient Commercial Buildings Deduction allows a property owner to claim an immediate tax deduction of up to $1.80 per square foot for energy efficient improvements to a building's envelope or its lighting, water and heating, ventilation and air conditionaing systems.  A building qualifies for the full deduction when energy efficient improvements are installed as part of a plan to reduce the building's total annual energy and power costs by 50% when measured against a reference building located in the same climate zone that meets the minimum requirements of American Society of Heating, Refrigeration and Air Conditioning Engineers or ASHRAE Standard 90.1-2001. 

Partial Deduction: A partial deduction is available for energy efficient improvements in each of the building's systems that result in energy cost savings of 16.6%.  The partial deduction equals up to $.60 per square foot for each qualifiying system.

     Hogan Building: The plan to incorporate the sustainable features of energy efficient windows and lighting controls may qualify the Hogan Building for the above tax deduction.  If these features qualify, the Hogan Building would definitely be eligible for the partial deduction and possibly the full deduction.

Sustainability Feature #3: Waterless Urinals

     How Waterless Urinals Work:  The concept behind waterless urinals is simple. The design of the bowl prevents urine from pooling and gathering. Instead, it flows down through small holes or a grating at the bottom of the bowl into a small reservoir called a trap. Inside this reservoir, the waste flows through a barrier of sealant, an oil-like liquid lighter than water that traps odors and prevents the urine from being exposed to air. Once underneath the sealant, the urine rests in a cylindrical well around a raised section of exposed pipe leading to the drainage line for the bathroom.

     As the waste rises higher than the top of the open drain pipe, the excess trickles down the drain. As more men use the urinal, the urine in the well continually flows out through the pipe as new urine displaces it. The urinals are designed in such a way that the flow of urine is continuous from the point it enters the trap until it enters the drain. This allows the waste to drain naturally, without needing to be forced out like a traditional urinal.

     Waterless urinals were actually invented back in the 1990s, but the recent push toward green construction has made them a more viable, commonplace option.

    

     Costs:  The cost of waterless urinals varies based on quality and quantity purchased.  A durable commercial grade waterless urinal can be obtained from www.airdelights.com for $320.  Installation costs are estimated to be an additional $80 for a total unit cost of $400 per unit installed.  The Hogan Building has 6 urinals that could be replaced with this system.  Accordingly, the total cost to install this system would be $2,400.  Cartridges in the system would need to be replaced every three months.  Replacement catridges cost about $40 and would be a maintenance component represented in the buildings operational expenses.

     Savings:  In an office building, the water used for flushing urinals is the largest use of water in the building.   Proponents of the waterless urinal system estimate it saves anywhere between 15,000 and 45,000 gallons of water per urinal per year.  Given the six urinals located in the Hogan Building, installing the waterless system could realize savings of 90,000 to 270,000 gallons of water per year.  This equates to significant savings on annual water bills.

     Benefits: Due to the savings discused above, which will be realized by tenants on their utility costs under NNN leases, the tenants will likely be willing to pay a "rent premium," for space in the Hogan Building.   The "rent premium" will be a portion of the savings realized by the tenant for energy and utility costs. After paying this portion to the owner, the tenant will still recognize a savings over what their costs would be in a building that lacked these sustainable features.  Utilizing the waterless urinal system combined with the incorporation of other sustainable elements will allow the Hogan Building to command an additional $1/sf/yr on the rents in each space in the building's three above ground floors. This would equate to an increase in annual rents on the 15,600 sf of rentable space on the first 3 floors of approximately $15,600 and year.

      Benefits of a sustainable building also extend beyond the financial realm. Occupying a "green building" is important to many young professionals who desire an urban lifestyle. Having "green aspects" incorporated into the Hogan Building will make it more attractive to this target demograhic. 

Sustainable Feature #2: Lighting Controls

     Let There Be Light (When Needed):   Significant opportunities for savings from lighting controls exist at the Hogan Building. The idea is for light to be immediately available in building spaces when needed and for cost savings to be realized by turning off lights in spaces when they are not occupied.  For example, bathrooms are unoccupied 70% of the time, and offices may be unoccupied up to 53% of the time, during any given workday.  Industry studies suggest that energy savings  related to lighting could reach 60% if  automatic off sensors were utilized.  These are basically motion sensors that are tied to the light switches.  When no motion is detected for a pre-determined period of time, usually a few minutes, the light control sensors turn off the lights.  The lights are reactivated when motion is sensed, such as would result from a person re-entering a room.  The potential energy savings from lighting controls and sensors are further supported by  research reported by the US EPA in their September 2007 report: “Putting Energy in  Profits: ENERGY STAR® Small Business Online Guide which show energy savings of 25% to 75% depending on the room type.  Such lighting controls are relatively inexpensive to install.

     Costs:  Wireless motion sensors with a detection range of 25 feet to control lighting can be purchase at Lowe's or Home Depot for apprximately $25 inclusive of tax.  The Hogan Building would need two wireless control sensors in each of its 24 rentable spaces in the basement and on floors 1 - 3.  An additional 4 sensors would be needed for the bathrrooms in the basement and on Floor 2 where there will be shared office space.  A total of 52 wireless motion control sensors at $25 a piece puts the materials cost at $1,300.  Allowing $700 for installation labor, the total cost of incorporating this sustainable feature into the Hogan Building would be approximately $2,000.

     Benefits:  Due to the cost savings discused above, which will be realized by tenants on their utility costs under NNN leases, the tenants will likely be willing to pay a "rent premium," for space in the Hogan Building.  The "rent premium" will be a portion of the savings realized by the tenant for energy and utility costs. After paying this portion to the owner, the tenant will still recognize a savings over what their costs would be in a building that lacked these sustainable features. Utilizing the wireless motion sensor lighting controls combined with the incorporation of other sustainable elements will allow the Hogan Building to command an additional $1/sf/yr on the rents in each space in the building's three above ground floors. This would equate to an increase in annual rents on the 15,600 sf of rentable space on the first 3 floors of approximately $15,600 and year.

       
     Benefits of a sustainable building also extend beyond the financial realm. Occupying a "green building" is important to many young professionals who desire an urban lifestyle. Having "green aspects" incorporated into the Hogan Building will make it more attractive to this target demograhic. The general public will also receive the benefit of the Hogan Building's lowered emissions and reduction in carbon footprint.

Sustainable Feature #1: Windows

     The Role of Windows:  Windows in a commercial building serve many purposes.  They regulate the types and amount of light that penetrate the buildings interior, allow for views, and can set the general mood inside the building's space.  Windows also play a significant role in the operations costs of a building.

     Energy Lost:  Many windows in older buildings, such as the Hogan Building, are single-pane or lack tinting or coating.  This decreases a buildings operational efficiency and leads to a tremendous loss of buiding energy. In the Winter, building heat escapes these windows to the outside environment and forces the building's central heating system to run harder and longer to attain a comfortable, acceptable interior temperature.  The reverse is true in the Summer months.

Replacement Costs:   Replacing all windows in a building can be very expensive.  The exact costs vary with the method of replacement and quality of the new windows. According to amberix.com, a rough estimate for a typical new, highly insulated, energy efficient, 12 square foot window is approximately $200.  Energetechs.com offers window replacement estimats that range from $38/sf to $133/sf.  On the second and third floor of the Hogan Building there are 96 windows.  Assuming a $200 per window replacement cost, it will cost approximately $20,000 to replace all windows on these two floors.  Additional costs would be incurred by replacing the aluminum store front windows on two sides of the first floor of Hogan Building.    Given the square footage of glass in the storefront windows on the first floor of the Hogan Building, a conservative estimate for the replacement of all first floor windows would br $20,000.  Accordingly, the minimum estimate to replace all windows at the Hogan Building is $40,000.

Benefits:  The US Green Building Counsel, the EPA and private industry studies suggest that installation of energy efficient windows can reduce building energy expenditures by 25% - 33%.   In addition to the reduced energy expenditures, building maintenance costs will also likely be reduced.   Due to these cost savings that will be realized by tenants on their utility costs under NNN leases, they will likely be willing to pay a "rent premium," for space in the Hogan Building.  The "rent premium" will be a portion of the savings realized by the tenant for energy and utility costs.  After paying this portion to the owner, the tenant will still recognize a savings over what their costs would be in a building that lacked these sustainable features.  Replacement of the windows combined with the incorporation of other sustainable elements will allow the Hogan Building to command an additional $1/sf/yr on the rents in each space in the building's three above ground floors. This would equate to an increase in annual rents on the 15,600 sf of rentable space on the first 3 floors of approximately 15,600 and year.  Therefore, the "payback period" on this investment, assuming the increased rent rate, would be approximately 10 years. 

 

   Benefits of a sustainable building also extend beyond the financial realm.  Occupying a "green building" is important to many young professionals who desire an urban lifestyle.  Having "green aspects" incorporated into the Hogan Building will make it more attractive to this target demograhic.  The general public will also receive the benefit of the Hogan Building's lowered emissions and reduction in carbon footprint.  

Investor Requires Incorporation of Sustainable Features

Sustainability Desired:  Investor Fred Forgey is pleased that the Hogan Building Project is feasible.  However, he desires to have at least 3 sustainability features incorporated into the building before agreeing to move forward with the purchase.  This will require identifying sustainable features and completing a cost--benefit analysis of the incorporation of each into the Hogan Building.  This all begs the questions:  What is a Sustainable Commercial Building?

What is a Sustainable Commercial Building?:  A sustainable commercial building can be defined as a building with planning, design, construction, operation,and management practices that reduce the impact of development on the environment.  A sustainable commercial building is also economically viable, andpotentially enhances the social amenity of its occupants and community.

Sustainable Features:  There are many different sustainable features that can be incorporated into new and existing buildings.  These rangefrom energy efficient HVAC systems and window to waterless urinals, green roofs and interior lighting controls.  Any sustainable feature that may be incorporated into the Hogan Building will need to be evaluated, at a minimum, in the context of market and financial performance.  Subsequnet blog entries will identify and analyze 3 specific sustainable features: 1) Energy Efficient Windows; 2) Automatic Lighting Controls; and 3) Waterless Urinals.

Hogan Building -- Financial Analysis

     Financial Analysis:  Regardless of the feasibility of all other metrics, if the financial analysis does not solidly support a project's completion then the project is a no go.  The following summarizes and presents key financial inputs and outputs for the analysis of this project. 

     Construction Costs: There is a significant variance in the construction costs by floor for this project.  Information used to estimate floor by floor estimated construction costs came from a variety of sources including RS Means, CityFeet.com, and the Fort Worth Chamber of Commerce.  The following summarizes what needs to be completed on each floor and estimated costs:

      Basement: To create six 1,000 sf offices in the basement will require improved lighting, the addition of toilets and the erection of partition walls.  The estimate construction cost to achieve this level of basic upgrades in this size space is $100,000.  Estimating construction costs of $14/sf in the basement provides a 3% cushion.

      First Floor: The first floor is retail ready.  Estimate $5/sf in TIs and the space should be ready to rent.  This equates to $18,755.

      Second Floor: Thge second floor is already office space, but is only tailored to a single tenant use.  The installation of partition walls and a $5/sf TI allowance for finish out will total $53,568 in construction costs.

      Third Floor: The third floor will convert office space to apartment / condo space.  The cost of construction a 1-3 story apartment complex in the DFW area is about $125/sf.  Because this is remedial and not new construction and is limited to one level, the third floor construction costs are estimated at $100/sf.  This is approximately $669,600

     Total Construction Cost: The total estimated construction cost for the entire building is $844,991.  The following displays a feasibility analysis for the project that incorporates these construction estimates with acquisition costs, costs of capital and other key metrics:

Financial Feasibility Analysis

+ Construction Costs (PSF)	$                     34.48
x Total Square Feet	24,505
= Total Construction Cost	$            844,932.40
+ Acquisition Costs	$            865,000.00
= Total Development Costs	$         1,709,932.40
- Governmental Rebates for Energy/Sustainability	$                          -
= Revised Development Costs	$         1,709,932.40
Project Financing Details
Maximum LTV Ratio	75.00%
Loan Term in Months	180
Loan Interest Rate	7.00%
Equity Required	$            427,483.10
Debt (Loan Amount)	$         1,282,449.30
Before Tax Cash Flow (BTCF)	$55,329.68
Annual Debt Service	$138,324.20
Minimum DSC Ratio	1.40
Required Minimum Net Operating Income (NOI)	$193,653.88
Total Operating Expenses as % of EGI	30.00%
Total Operating Expenses	$82,994.52
Effective Gross Income (EGI)	$276,648.40
Vacancy and Collection Loss % of PGI	15.00%
Vacancy and Collection Loss (VCL)	$              48,820.31
Potential Gross Income (PGI)	$            325,468.71
Required Gross Rental Rate PSF	$                     13.28
Required Net Rental Rate PSF	$                       7.90
BTCF/EQUITY INVESTED (BTROE)	12.94%

Analysis: Given the above assumptions and estimates, this project needs attain an average gross rental rate psf of $13.28.  This equates to a minimum Potential Gross Income of $325,468.71.

     Office Space:  According to Grubb & Ellis & CBRE -- Office & Industrial Trends Report, 4th Quarter 2011, average annual rates for Class B Office Space in Fort Worth's Central Business District were $19.15/sf.  Offices in the basement will not enjoy the visibility and notarity of spae above ground.  Accoringly, annual basement rents are estimated at $10 sf or $60,000.  To be conservative, the office annual rents will be discounted 5.2% from the $19.15.  Estimating second floor office space rents at $18/sf/yr yields $108,000 in revenue.

     Retail Space:  Information from Loop.net indicates that retail rents in and around the central business district range from $20 - $22/sf/yr.  The first floor retail space in the Hogan Building is highly visible and on a busy corner of a busy street.  Therefore, $20/sf/yr is estimated for the retail rent on the six 600 sf spaces.  This yields $72,000 in revenue.

      Residentail Space: Rates per sf in and around the central business district varied greatly.  The sf rates even varied significantly within the same building.  For instance, at the Houston Street Lofts, which is a few buildings down the block at 910 Houston Street, the annual sf rates varied from $1.69 sf/mo. to $2.68 sf/mo.  This variance probably correlates to quality of finish out and amenities.  Expecting that the third floor apartments/condos in the Hogan Building will be "above average" in these areas, but not luxurious, residential rates for our project will be stimated at $1.90 sf/mo.  This equates to $136,800 in revenue.

     Conclusion:  Total Potential Annual Gross Revenue is $376,800.  This exceeds the minimum Potential Gross Income of $325,468.71.  Therefore, the project is financially feasible.  The cushion of $51,331.29 is a 15.77% margin of safety vis-a-via the minimum requirement for project feasibility.     

Hogan Building -- The Plan

     To this point in the feasibility analysis, the purchase of the Hogan Building looks promising.  After discussions with the client, the question has been raised as to the financial feasibility of turning the building into a multi-use complex with 6--1,000 sf office spaces in the basement; 6--600 sf retail spaces on the first floor; 6--1,000 sf office spaces on the second floor; and 6--1,000 sf condos on the third floor.  The financial feasibility analysis will be conducted with this configured use for the building.  Ideally, the second floor offices would be leased to professionals who would also lease a condo on the third floor directly above their office.

Hogan Building -- Regulatory Analysis

      Are Contemplated Uses Acceptable to Local Authorities?:   Regulatory issues are important to evaluate when planning a development or redevelopment deal.  Permitted uses, or zoning, for the proposed property must be understood to determine if the desired use for a property is legally acceptable to local authorities.  Deed restrictions, floor area ratios, eminent domain and othe considerations can also be important to the regulatory analysis component of a feasibility study.  The only regulatory concern of note for the Hogan Building is whether or not it is zoned to allow for retail, restaurants/bars, office and or office use.

     Zoning of 901 Houston Street:  According to the GIS Interactive Zoning Map from the City of Fort Worth,  the Hogan Building is zoned "H."  This is a tremendously flexible designation that falls in the category of "high intensity commercial."

Given zoning of "H," the acceptable uses for the site are varied and diverse.  The City of Fort Worth's Planning and Development Department has produced a document entitled "Summary of Zoning Districts of the City of Fort Worth."  According to that document, the following uses of the space at the Hogan Building would be expressly permitted: beauty/barber shop, bookstores, drugstores, studios and offices, public and civic uses, nursing homes, health care facilities, retails sales, banks, restaurants, bakeries, theatres, hotels,commercial and business clubs, nightclubs and pool halls, taverns, , multi-family residential, prinitng and publishing, and wholesale offices.

     Conclusion: Current zoning for the property allows for all contemplated uses.  There is no zoning imediment to overcome in this process.  No other regulatory issues are expected to prevent contemplated uses.  All contemplated uses are therefore feasible vis-a-via the regulatory analysis. 

Hogan Building -- Market Analysis

     Market forces and demographic information in and around the block where the Hogan Building is located are crucially important metrics to evaluate as part of the market analysis.  The following discusses some of those key metrics.  The information provided below is courtesy of Cityfeet.com and providers it deems reliable.

     Traffic in Area of Building: Traffic in the area of the building is an indicator of potential success for tenants who may locate in the building.  As such, it is an important analysis metric in determining the support for rent levels that will be necessary to ensure the success of a real estate project in this area.  Daytime and night populations can vary.

 

     Daytime Population: The total daytime population within one mile of 901 Houston Street is 49,961.  Of that, 46,228 people are considered "daytime work population."  This indicates that during the day, most people within one mile of this building are in the area for work or work-related purposes.  Work populations have been steadily growing in the area the past couple of years and appear to be outpacing the creation of new office facilities.  This may bode well for the prospect of leasing the basement, second and/or third floors as office space or retail space.  

Night Population: The Hogan Building is located just across the street from the Houston Street Bar & Patio, which features a rooftop patio.  Rick O'Shea's Pub is also across the street and on the corner is Bar 9, which features three separate floors of danceclub, nightclub and upstairs clubrooms. 

     The Hogan Building is also within easy walking distance of the Omni Hotel, Fort Worth Convention Center, dozens of restaurants, a variety of high-quality entertainment and attraction venues, and a myriad of shopping opportunities. 

     Conclusion: There is significant daytime and night traffic in the immediate vicinity of the Hogan Building.  It could serve as the right location for retail establishments or the certain ecclectic restaurant / bar tenants.  Such tenants would face stiff competition from surrounding, established businesses.  Boutique or specialized retail may be the best fit for the first floor of building as it would be highly visible and distinct from the more routine retail options in the surrounding area.

     This is a vibrant area just outside of Fort Worth's Central Business District.  The basement, second and third floors may perfect for a Home--Office Building set up for young and middle aged professionals who desire an urban lifestyle and wish to free from daily communtes. 

Hogan Building -- Site Analysis

    History of the Building:  The Hogan Building is located at 901 Houston Street in donwtown Fort Worth, Texas.  The building was named for Royal Hogan, the brother of legendary golfer, Ben Hogan.  Royal Hogan purchased the building in 1964 and operated The Hogan Office Supply Company there until early 1997.    The building is three stories above ground and has a basement.  The following summarizes certain key site analysis metrics.

     Site Visibility:  Visibility for this site is very good as the building is located on the corner of 9th and Houston Street.  This is in the heart of downtown Fort Worth's Soho District and is only three blocks from the Fort Worth Convention center.  The location is also only one block from the very popular Del Frisco's Double Eagle Restaurant.

 

     Site Accessibility & Parking:  Being in downtown near the Convention Center, the site is easily accessible.  The site is mere minutes from Interstate-30 can be reached by multiple routes once in the downtown area.  There is plenty of street and surface parking in the area immediatey surrounding the site.


     Size & Configuration: The building is approximately 30,000 sqaure feet.  The entire basement is available and contains 7,362 square feet.  Being below street level, tenants in the basement will not enjoy the full benefits of the building's visibility.  Accordingly, basement rents will need to be discounted. 

     First Floor: On the first floor, 3,751 square feet would be available to lease.  The remainder of the first floor is occupied by long-term tenant, FedEx Kinkos.  The available spaceis flexible and could be a good fit for a restaurant / bar, retail or office tenants.


     Second Floor: The second floor has traditionally been utilized as office space and contains 6,696 square feet, which is cuurently vacant.  This space would be suitable for office tenants or conversion to residential living space. 



     Third Floor:  The third floor also contains 6,696 square feet of vacant space that has been traditionally used for office space.  Like the second floor. this space would be suitable for use as office or residential space.

     Conclusion: This site has a good location, visibility, accessibility and allows flexibiliy for use of its vacant space.  Therefore, the site analysis conlsuion is that this location is feasibile for development of a mixed use building that will include retial, office and / or residential tenants. 

Project Selection & Description

     Selection Process:  Given the client's project parameters, several properties were examined in search of a relativley small scale development / redevelopment project.  Properties that were considered included, but are not limited to the following: 1) an abandoned warehouse building just to the northwest of downtown Dallas; 2) an abandoned car wash in Dallas; 3) a three-story office building in Hurst;  

4) an approximately 5,000 square foot building in East Dallas that was described as "flexible space;" and,

5) the Hogan Building in downtown Fort Worth.  Some of the examined properties were "no go properties" from the start because of location, the need for significant up front remediation, or the character ofthe surrounding area.

     Property Selected for Feasibility Analysis: Based on its location, other redevelopment projects in the immediate area, the surrounding market's momentum, and perceived flexibility in space utilization, Blue Development, LLC has selected the Hogan Building located at 901 Houston Street in donwtown Fort Worth for a full feasibility analysis.  The subject property to be analyzedis pictured below:

    

Development Feasibility Analysis

     The Process for Evaluating a Potential Project: There are four primary phases of analysis required to evaluate the feasibility of potential development projects.  They are site analysis, regulatory analysis, market analysis and financial analysis.

      Site Analysis: The site analysis for a project requires evaluation of several important factors including: 1) visibility and accessibility of the site; 2) size, configuaration and topography of the site; 3) traffic count; 4) exisiting and pre-existing site uses; 5) tenant mix; and, 6) site utilities and infrastructure.

     Regulatory Analysis: Factors to be considered in the regulatory analysis phase of a feasibility study can include: 1) Allowed uses, entitlements, and zoning; 2) height and density restrictions; 3) set back requirements; 4) water detention requirements; 5) floor area ratios; 6) tree ordinances; 7) deed restrictions; 8) eminent domain concerns; and, 9) the risk of changing regulations.

     Market Analysis:  Demographics is a key consideration in the market analysis of a project. The age, income, education levels and population trends of an area are significant drivers of project success.  Other factors worthy of consideration include pre-existing or planned competition to the contemplated project; employment trends; psycho-graphics analysis; market momentum; and, where a the project site is the current market cycle.

     Financial Analysis: The financial analysis is where the proverbial rubber meets the road.  Each of the above factors figure into the financial analysis, directly or indirectly. 

    

     Specific factors to be evaluated in the financial analysis of a proeject include: 1) local rent and occupancy rates; 2) projected operating expenses for the project; 3) construction costs; 4) cost of capital; 5) land cost; 6) projected holding period; 7) DSCRs; 8) LTVs; and, 9) soft costs for project, such as design fees, attorney fees, lobbying fees, etc.

The Search For a Project

     The Client: Blue Development, LLC has been retained by real estate mogul and acclaimed investor, Fred Forgey, to identify possible project sites for development.

     Project Parameters: Forgey desires a project site in the DFW Metroplex.  He is interested in a relatively small, but unique project.

     He has no desire to deal in traditional apartment complexes, office buildings, retail or industrial properties. Some sort of hybrid property, mixed use property or special use property appears to be in order. Flexibility in the use of project space is important to this client.

Project Selection: An Overview

     First Things First:  For generations people have considered the riddle of which came first -- the chicken or the egg.  Often in real estate development a similar riddle arises.  The first two questions often posed are: Do you have a site in search of use?  Or a use in search of site?

Blue Development Philosophy: Flexibility is the key component of Blue Development, LLC's development philosophy.  Although sometimes unavoidable, being locked into a site or a use is not always the best way to approach a project.  Instead, we chose to listen to the market.  Key growth, demand, demographic and other metrics will identify sites in and around areas that are likely to become future "hot spots."  Likewise, the highest and best use of the site will be dictated by taste preferences and desired lifestyles, which are frequently communicated by the market.

      Project Selection:  With these guiding principles in mind -- the search for Blue Development, LLC's next development project begins.  Loopnet.com, CoStar and NNN1.com will be the starting point for identifying development prospects.