505 Congress Street South Boston Reimagining the Boston

505 Congress Street South Boston Re-imagining the Boston Waterfront RECREATE, LLC Tim Johnson, Jennifer Balkcom, Scott Nguyen, Arvind Pai, Alison Novak, Charu

Vision of Create an innovative living space to take advantage transitioning, well-located neighborhood. Vision • Emerging urban neighborhood complimented by near natural amenities • Dense living in a green building • Target young professionals Product • Multi-family residential for rent with on-demand office space

Team Goals Young development team seeking experience. • Establish foothold in Boston real estate market & South Boston • Gain development experience • Build reputation • Make money

Agenda Site Context Market Analysis Regulatory Process Site Design Construction Timeline Capital Budget Financial Analysis

SITE CONTEXT

Context 8. 8 million SF in development pipeline signals emerging market. Downtown Convention Center T T T CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

MARKET ANALYSIS

The Boston Economy Stable economy. • • • Recovering from a period of negative growth All demand drivers are stable Vacancy rate is forecasted at less than 5% Positive real rent growth projected Leading growth industries Source: Torto-Wheaton Research 2005 CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Supply pioneering Time project before market saturation but after projects. Limited existing supply Extensive projected development 2, 600 residential units Mostly for sale High metro-area demand for residential 4. 45% cap rate CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Market Area The target population is well represented within a 5 mile radius of the site. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Residential Target Market Target underserved market segment Residential Target Group • $65, 000 -125, 000 income range • Service-based employment • Upwardly mobile CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Office Target Market Site is well located to meet temporary office needs. On-demand office space is ideal for companies who desire: Proximity to the convention center Location close to downtown Flexible office space T Convention Center CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

REGULATORY PROCESS

Regulatory Process Area is slated for large-scale development, site use flexible Article 27 P • Flexible open space and FAR requirements due to IPOD zoning • Affordable housing and street improvement requirements Article 80: BRA Review • Large Project Review • Boston Civic Design Commission CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Regulatory Analysis Although FAR is by-right, the public process is unpredictable. Areas of concern • Site coverage ratio relief may trigger exaction fee • Meeting EPA & HUD standards for air quality and noise • Unspecified fee schedule Strategies • Foster relationships with relevant BRA staff, neighborhood groups, and environmental NGO CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

SITE DESIGN

Opportunities & Challenges 505 Congress St. is well-located but has many challenging site conditions. Odd-shaped parcel Shallow depth 100’ High Traffic Flows Adjacent to Central Artery Tunnel Vent Building CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Site Plan Residential Tower Drop Off Point Egress Office-on-Demand Service Area Retail Ground Floor Us Ingre ss Landscaped Park Creative design optimizes this constrained site. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Elevation Mixed Use design. Residential Tower 12 stories 117 units 89, 023 net rentable Office-on-Demand sfst 1 Floor Podium 19, 843 net rentable sf Parking Below grade structure 77 parking spaces CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Design Elements Building Amenities • • • 24 hr. concierge Landscaped roof garden On-site parking garage Zip-Car® available Indoor bicycle storage Coffee shop & dry cleaning services Lifestyle amenities compliment project. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Interior Finishes Modern & sustainable living space. Apartment Features • Energy Star® appliances • Ceramic tiled floors (kitchen & bath) • Non-toxic carpeting • FSC certified wood cabinets • Designer hardware • Elegant, energy efficient light fixtures • High speed Internet access, cable TV, multiple phone lines CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

LEED Elements LEED certified design. Indoor Technologies Rainwater Collection System Maximizing daylighting Photovoltaic panels Indoor air quality improvement systems Energy efficient system Dual-flush toilets Low-E glass Green roof Energy Star appliances Low VOC materials CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

LEED Elements Many Cost Premium items will pay for themselves. Cost Neutral Cost Premium Sustainable Site Selection Roof Landscape Design Urban Redevelopment Rain Collection System Exterior Landscape Design Advanced HVAC Systems Public Transportation Low-E Glass Bicycle Storage Building Commissioning Parking Capacity Halon/HCFC-free fire systems Water Efficient Landscaping Photovoltaics Panels Water Use Reduction (20%) CO 2 Monitoring Construction Waste Management Low VOC Carpets Recycled Content Materials Regional Materials Low VOC paints & adhesives/sealants CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL Day-lighting

CONSTRUCTION TIMELINE

Construction Timeline CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Construction Cost Breakdown CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

CAPITAL BUDGET

Capital Budget Total Development Cost is $280/sf. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Project Timeline 4 years until project stabilizes. > 18 months 12 months CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Project Timeline Early team formation facilitates integrated design. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

FINANCIAL ANALYSIS

Assumptions Conservative Assumptions. • Escalation for construction cost = 5% annually • Absorption rates = one year (Re. Create market research) • Rental growth = 4% (TWR Fall 2005 ) • Op Ex growth = inflation rate (new building) • Vacancy = 5% apartments, 12. 3% office (TWR Fall 2005 ) • Going in cap rate = 6. 96% office, 4. 45% residential (NCREIF Boston) • Going in/out cap rate spread = 30 bps office and 97 bps residential (Korpacz 2005) CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Rental Assumptions Mix of Market, Affordable and Office Components Market Apartments: average rent $2, 200/month • Apartment Operating Expenses + Taxes are $10. 5 PSF • Green building reduces expense on utilities – Lower effective rents to tenants • Parking Rent is $225 per spot (NNN) Office Rents: $35 PSF Gross • Office Operating Expense + Taxes are $17 PSF CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Financing Green financing allows lower equity returns. Total Project Cost including land @ time 0: $46, 400, 000 Construction Loan: $33, 400, 000 • Key Bank: 18 month term, 75% LTC, floating interest rate 6. 54% Permanent Loan takes out construction loan • Deutsche Bank: 10 year balloon, 30 year amortization, 80% LTC, fixed interest rate 5. 6%, Required DSCR 1. 25 Equity Partners • Key Bank, Investor’s Circle, Re. Create: 19. 3% blended return • Initial Hurdle: Pari passu up to 15% • 82 – 10 - 8 after 15% hurdle is achieved CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Returns Sell upon stabilization. • Project provides minimal positive NPV • Proposed equity splits compensate developer after meeting 15% initial hurdle EQUITY INVESTORS Key. Bank Recreate Total Equity $ 2, 000 $10, 712, 613 $ 300, 000 13, 012, 613 Required Return (10 yr hold) 9. 5% 15% 20% 14. 3% Required Return (Development) 15% 20% 25% 19. 3% 15. 4% 82. 3% 100. 0% 10. 00% 82. 00% 8. 00% Amount % Of equity Residual Splits Investor's Circle CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Sensitivity Analysis A very sensitive project but our numbers are conservative. Varying rents with constant construction costs Varying Rents - Constant Construction Cost Monthly Rent Residual Land Value 2100 $ 192, 000 2200 $ 2, 400, 000 2300 $ 4, 600, 000 Varying construction cost escalation with constant rents Varying Construction Cost Escalation - Constant Rents Escalation Residual Land Value 0% 5, 000 5% 2, 400, 000 10% (181, 000) 15% (2, 800, 000) CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Mitigating Risk Built-in leeway for uncertainty. Minimizing temporal uncertainty • Pre-leasing office space • Sale after stabilization will take advantage of low cap rates now and reduce future risk of unknown market in 10 years Mitigating risk for construction • Construction escalation of 5% built in until GMP • GMP contract will mitigate further price increases • Confirmed timeline feasibility CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Alternative Strategies Examined strategies for increasing returns Considered: • Extending construction loan to cover lease-up period? • Whether rents were too conservative? • Taking developer’s fee as return on equity instead of project cost? • Getting land value contributed as equity? • Reducing construction costs – How cheaply can we build? Which green building components can be achieved at lowest cost? • Increasing FAR beyond as-of-right? • Sale as condos (option valuation) CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL

Conclusion $10 Million ≠ $2. 4 Million ?

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