10-28 Centennial Place Development Analysis December 2012
The Project
Location
The property is located in the historic mill village area of Saxonville in Framingham, MA. Centennial Place is a dead end street directly across from a few well kept single family homes and abuts conservation land managed by the Sudbury Valley Trustees. There is a water view in the winter. It is close to the Mass Pike, Framingham State University, Framingham Center, Route 9 and Lake Cochituate. It is within walking distance to the bus lines and a wide array of local businesses.
MAP:
https://www.google.com/maps/place/10+Centennial+Pl,+Framingham,+MA+01701/data=!4m2!3m1!1s0x89e388b832d31977:0x824f018b0ff6f1d9?sa=X&ved=0ahUKEwjcpqjHmpbOAhUDTSYKHSPpCusQ8gEIGzAA
Neighborhood:
http://www.neighborhoodscout.com/ma/framingham/saxonville/#overview
Local Real Estate Market
Framingham was impacted by the sub-prime mortgage crisis. There were isolated foreclosures, but foreclosures did not flood the market and whatever impact was there has passed. The rental market also dropped during the recession, but is on the rebound and rental prices are on the rise. Saxonville is a safe, middle class area with a solid average rental value of $1600 per month.
The Property
The building is a three story, wood framed building. The siding is aluminum. There are flowerbeds in front of each building. The 22 units total approximately 18,000 square feet of interior space on an approximate 21,000 square foot lot. It has a large parking area in the front, side and rear of the building for a total of 44 spaces - 16 in the front, 19 in the rear and 9 on the side. There is coin op laundry and all units have separately metered utilities. The spaces will be included in the leases with the rent.
Tenants
The building will be delivered occupied, although there are usually one or two vacancies at any given time. The rents are below market due to the poor condition of the units and poor management. Nicer units will attract more gainfully employed, higher paying tenants.
Development Plan
This is/could be a great property. It is relatively well located in a decent part of town and near highways. There is a good mix of unit sizes, with studios, one, two, three and four bedroom units. The property is very poorly managed, which likely created the opportunity for the short sale and the below market purchase price. The poor management has allowed the units to look very worn. This, in turn, has caused constant turnover. We will take advantage of the turnover to renovate the units one at a time. At the same time, we will upgrade the grounds, exterior and common hallways. Each renovated unit will rent for higher prices and to better tenants. Once 8 to 10units are renovated, better tenants will move in, the living environment will be altered, which in turn will stabilize the building and drive rents higher.
Financing
We shall make cash contributions of $400,000 to finance 75% ($1,000,000.00) of the $1,500,000.00 purchase price as well as obtain a construction loan of $400,000 for a total loan of $1,400,000.00. Based on the projected rental income and a 7 cap rate, the completed value would be over $3,000,000. Therefore the final loan represents an approximately 45% loan to value ratio.
The Renovations
The Exterior
The exterior of the building is aluminum siding and will need to be painted. Minor carpentry repairs and painting around windows and doors will be done. The roof is in average condition and will not need to be replaced. Most windows have already been replaced and are in good condition. The fire escapes need to be rebolted to the side of the building.
The Common Areas
There are ten front entryways. Each front hallway will need a complete makeover with new paint, lighting and mailboxes. The existing stair treads will be sanded and polyurethaned.
There is a communal laundry room in working condition with 2 coin operated washers and 2 coin operated dryers.
The heating systems are older. They will not need immediate replacements but will in time. The electrical service has been upgraded. Each unit has a new sub panel, so only minor rewiring will be required.
Structural Issues
In the basement, the joists have not been installed to code. The extensive use of new joist hangers will be required.
The Units
There are twenty-two units. The first floors will have 9 one bedroom units and 1 studio unit. The second floor will have 6 three bedroom duplexes, and 1 four bedroom duplex. The second and third floors will have 2 studios and 2 one bedroom units and 1 two bedroom unit.
Each unit is in average to poor condition. Very inexpensive carpet has been used in most rooms. The cabinets, light fixtures and vanities are cheap and old.
The building performs well and turns a good profit with the current rents due to the short sale purchase price. However, we would not want to own a rental property in this condition. As tenants vacate, we will be able to upgrade the units. We will have budgeted $15,000 per unit. This will allow for general upgrades throughout each unit.
Wood flooring (prefinished) will be installed. This will look better, wear better, and last much longer.
Kitchen cabinets and counters will be upgraded. New vanities, sinks, light fixtures and medicine cabinets will be installed.
Each unit will be selectively upgraded depending on its condition. Floor plan adjustments will be done selectively on a unit by unit basis. Once enough units are completed, along with the upgrades to the common areas, we will attract better tenants. This will remove the current image and tenant mix, which will help to drive rents higher.
Rental Analysis
The Framingham rental market is rebounding in all price ranges and has a low vacancy rate. This is not the highest rent district In Framingham. However, once the quality and living environment of the units has been upgraded, these units will be in demand.
Gross Monthly Rents Annual Operating Expenses
Current Rents Projected Rents Unit Size Taxes $22,500.00
Unit 10-1 $700.00 $900 1 Bed Insurance $7,500.00
Unit 10-2 $700.00 $1,500 3 Bed Water/Sewer $10,500.00
Management $13,200.00
Unit 12-1 $725.00 $900 1 Bed Maintenance $11,000.00
Unit 12-2 $1,200.00 $1,500 3 Bed Electric $3,050.00
Trash $4,200.00
Unit 14-1 $700.00 $800 Studio Alarm Monitoring $4,400.00
Unit 14-2 $1,300.00 $1,800 4 Bed Annual Expenses $76,350.00
Unit 16-1 $700.00 $900 1 Bed
Unit 16-2 $750.00 $900 1 Bed
Unit 16-3L $750.00 $900 1 Bed
Unit 16-3R $800.00 $900 1 Bed
Unit 18-1 $750.00 $900 1 Bed
Unit 18-2 $725.00 $900 1 Bed
Unit 20-1 $750.00 $900 1 Bed
Unit 20-2 $1,000.00 $1,500 3 Bed
Unit 22-1 $700.00 $900 1 Bed
Unit 22-2 $1,150.00 $1,500 3 Bed
Unit 24-1 $750.00 $900 1 Bed
Unit 24-2 $1,200.00 $1,500 3 Bed
Unit 26-1 $700.00 $800 Studio
Unit 28-1 $700.00 $900 1 Bed
Unit 28-2L $700.00 $800 Studio
Unit 28-2R $1,100.00 $1,500 3 Bed
TOTAL $18,550.00 $24,000 22 Units
Current Income Analysis Projected Income Analysis
Annual Income = $18,550 x 12 = $222,600 Annual Income = $24,000 x 12 = $288,000
Net Operating Income = $222,600 - $76,350.00= $146,250 Net Operating Income = $288,000 -$76,350.00 = $211,650
Monthly Debt Service ($1,000,000 @ 4%) = $5,000 Monthly Debt Service = ($1,350,000 @ 4%) = $6,700
Annual Debt Service = $5,000 x 12 = $60,000 Annual Debt Service = $6,700 x 12 = $80,400
Net Annual Income = $146,250 - $60,000 = $86,250 Net Annual Income = $211,650 - $80,400 = $131,250
Current ROI Projected ROI
Total Cash Contributions = $350,000 Total Cash Contributions = $350,000
Total Annual Income = $86,250 Total Annual Income = $131,250
ROI = 24.64% ROI = 37.50%
Summary
The purchase is a short sale. It is in poor condition and poorly managed. This provides us an excellent opportunity. With improved units and better management this can become a solid rental property. After the initial drop in 2007 and preceding softness, real estate values have risen steadily during the recession. The market has should continue to improve throughout the next several years. The only foreseeable risk is quickly rising interest rates or another recession. This could cause prices to deflate in the short term. There are currently no signs of this happening. The economy is struggling along with modest growth and shows no signs of rapid growth required for interest rates to rise quickly.
CLICK ON A PHOTO TO VIEW A LARGER IMAGE:
September 2016
The Project
Location
The property is located in the historic mill village area of Saxonville in Framingham, MA. Centennial Place is a dead end street directly across from a few well kept single family homes and abuts conservation land managed by the Sudbury Valley Trustees. There is a water view in the winter. It is close to the Mass Pike, Framingham State University, Framingham Center, Route 9 and Lake Cochituate. It is within walking distance to the bus lines and a wide array of local businesses.
MAP:
https://www.google.com/maps/place/10+Centennial+Pl,+Framingham,+MA+01701/data=!4m2!3m1!1s0x89e388b832d31977:0x824f018b0ff6f1d9?sa=X&ved=0ahUKEwjcpqjHmpbOAhUDTSYKHSPpCusQ8gEIGzAA
Neighborhood:
http://www.neighborhoodscout.com/ma/framingham/saxonville/#overview
Local Real Estate Market
Framingham was impacted by the sub-prime mortgage crisis. There were isolated foreclosures, but foreclosures did not flood the market and whatever impact was there has passed. The rental market also dropped during the recession, but is on the rebound and rental prices are on the rise. Saxonville is a safe, middle class area with a solid average rental value of $1600 per month.
The Property
The building is a three story, wood framed building. The siding is aluminum. There are flowerbeds in front of each building. The 22 units total approximately 18,000 square feet of interior space on an approximate 21,000 square foot lot. It has a large parking area in the front, side and rear of the building for a total of 44 spaces - 16 in the front, 19 in the rear and 9 on the side. There is coin op laundry and all units have separately metered utilities. The spaces will be included in the leases with the rent.
Tenants
The building will be delivered occupied, although there are usually one or two vacancies at any given time. The rents are below market due to the poor condition of the units and poor management. Nicer units will attract more gainfully employed, higher paying tenants.
Development Plan
This is/could be a great property. It is relatively well located in a decent part of town and near highways. There is a good mix of unit sizes, with studios, one, two, three and four bedroom units. The property is very poorly managed, which likely created the opportunity for the short sale and the below market purchase price. The poor management has allowed the units to look very worn. This, in turn, has caused constant turnover. We will take advantage of the turnover to renovate the units one at a time. At the same time, we will upgrade the grounds, exterior and common hallways. Each renovated unit will rent for higher prices and to better tenants. Once 8 to 10units are renovated, better tenants will move in, the living environment will be altered, which in turn will stabilize the building and drive rents higher.
Financing
We shall make cash contributions of $400,000 to finance 75% ($1,000,000.00) of the $1,500,000.00 purchase price as well as obtain a construction loan of $400,000 for a total loan of $1,400,000.00. Based on the projected rental income and a 7 cap rate, the completed value would be over $3,000,000. Therefore the final loan represents an approximately 45% loan to value ratio.
The Renovations
The Exterior
The exterior of the building is aluminum siding and will need to be painted. Minor carpentry repairs and painting around windows and doors will be done. The roof is in average condition and will not need to be replaced. Most windows have already been replaced and are in good condition. The fire escapes need to be rebolted to the side of the building.
The Common Areas
There are ten front entryways. Each front hallway will need a complete makeover with new paint, lighting and mailboxes. The existing stair treads will be sanded and polyurethaned.
There is a communal laundry room in working condition with 2 coin operated washers and 2 coin operated dryers.
The heating systems are older. They will not need immediate replacements but will in time. The electrical service has been upgraded. Each unit has a new sub panel, so only minor rewiring will be required.
Structural Issues
In the basement, the joists have not been installed to code. The extensive use of new joist hangers will be required.
The Units
There are twenty-two units. The first floors will have 9 one bedroom units and 1 studio unit. The second floor will have 6 three bedroom duplexes, and 1 four bedroom duplex. The second and third floors will have 2 studios and 2 one bedroom units and 1 two bedroom unit.
Each unit is in average to poor condition. Very inexpensive carpet has been used in most rooms. The cabinets, light fixtures and vanities are cheap and old.
The building performs well and turns a good profit with the current rents due to the short sale purchase price. However, we would not want to own a rental property in this condition. As tenants vacate, we will be able to upgrade the units. We will have budgeted $15,000 per unit. This will allow for general upgrades throughout each unit.
Wood flooring (prefinished) will be installed. This will look better, wear better, and last much longer.
Kitchen cabinets and counters will be upgraded. New vanities, sinks, light fixtures and medicine cabinets will be installed.
Each unit will be selectively upgraded depending on its condition. Floor plan adjustments will be done selectively on a unit by unit basis. Once enough units are completed, along with the upgrades to the common areas, we will attract better tenants. This will remove the current image and tenant mix, which will help to drive rents higher.
Rental Analysis
The Framingham rental market is rebounding in all price ranges and has a low vacancy rate. This is not the highest rent district In Framingham. However, once the quality and living environment of the units has been upgraded, these units will be in demand.
Gross Monthly Rents Annual Operating Expenses
Current Rents Projected Rents Unit Size Taxes $22,500.00
Unit 10-1 $700.00 $900 1 Bed Insurance $7,500.00
Unit 10-2 $700.00 $1,500 3 Bed Water/Sewer $10,500.00
Management $13,200.00
Unit 12-1 $725.00 $900 1 Bed Maintenance $11,000.00
Unit 12-2 $1,200.00 $1,500 3 Bed Electric $3,050.00
Trash $4,200.00
Unit 14-1 $700.00 $800 Studio Alarm Monitoring $4,400.00
Unit 14-2 $1,300.00 $1,800 4 Bed Annual Expenses $76,350.00
Unit 16-1 $700.00 $900 1 Bed
Unit 16-2 $750.00 $900 1 Bed
Unit 16-3L $750.00 $900 1 Bed
Unit 16-3R $800.00 $900 1 Bed
Unit 18-1 $750.00 $900 1 Bed
Unit 18-2 $725.00 $900 1 Bed
Unit 20-1 $750.00 $900 1 Bed
Unit 20-2 $1,000.00 $1,500 3 Bed
Unit 22-1 $700.00 $900 1 Bed
Unit 22-2 $1,150.00 $1,500 3 Bed
Unit 24-1 $750.00 $900 1 Bed
Unit 24-2 $1,200.00 $1,500 3 Bed
Unit 26-1 $700.00 $800 Studio
Unit 28-1 $700.00 $900 1 Bed
Unit 28-2L $700.00 $800 Studio
Unit 28-2R $1,100.00 $1,500 3 Bed
TOTAL $18,550.00 $24,000 22 Units
Current Income Analysis Projected Income Analysis
Annual Income = $18,550 x 12 = $222,600 Annual Income = $24,000 x 12 = $288,000
Net Operating Income = $222,600 - $76,350.00= $146,250 Net Operating Income = $288,000 -$76,350.00 = $211,650
Monthly Debt Service ($1,000,000 @ 4%) = $5,000 Monthly Debt Service = ($1,350,000 @ 4%) = $6,700
Annual Debt Service = $5,000 x 12 = $60,000 Annual Debt Service = $6,700 x 12 = $80,400
Net Annual Income = $146,250 - $60,000 = $86,250 Net Annual Income = $211,650 - $80,400 = $131,250
Current ROI Projected ROI
Total Cash Contributions = $350,000 Total Cash Contributions = $350,000
Total Annual Income = $86,250 Total Annual Income = $131,250
ROI = 24.64% ROI = 37.50%
Summary
The purchase is a short sale. It is in poor condition and poorly managed. This provides us an excellent opportunity. With improved units and better management this can become a solid rental property. After the initial drop in 2007 and preceding softness, real estate values have risen steadily during the recession. The market has should continue to improve throughout the next several years. The only foreseeable risk is quickly rising interest rates or another recession. This could cause prices to deflate in the short term. There are currently no signs of this happening. The economy is struggling along with modest growth and shows no signs of rapid growth required for interest rates to rise quickly.
CLICK ON A PHOTO TO VIEW A LARGER IMAGE:
September 2016