GRAHAM STREET LOFTS

Denise Mejia • Aaron Ray

USP423 • Spring Term 2009
 PROPERTY OVERVIEW

4 TWO-STORY
RESIDENCES
GRAHAM STREET LOFTS

4 ONE-STORY
RESIDENCES

4 LIVE/WORK
COMMERCIAL
UNITS

‣ Residential over Live/Work Commercial

‣ 12 units total, all originally intended to be sold as condominium units
 DEVELOPER INFORMATION
‣ Developer and Architect: Hilary
Mackenzie.
‣ Principal of Mackenzie Architecture, based
in Portland.
GRAHAM STREET LOFTS

‣ Emphasizes energy efficient structures

using innovative materials and techniques.

‣ Diverse portfolio
‣ Single-family residences in both urban and
rural settings.
‣ Some work with mixed-use, multi-family
apartment and studio projects.
‣ Both commissioned & speculative projects.

‣ Graham Street Lofts is the

developer’s first speculative mixed-
use, multi-family project.
 LOCATION & SITE CHARACTERISTICS
‣ 325 NE Graham Street
‣ At intersection with MLK Blvd.
‣ In the Eliot neighborhood.
‣ Formerly used as surface parking lot.
GRAHAM STREET LOFTS

‣ Designated as zone ExD.

‣ Central Employment Zone
‣ Mixed-use residential, commercial,
light industrial
‣ Maximum height: 65 feet
‣ Allowed FAR: 3:1

‣ Nearby attractions:
‣ Legacy Emanuel Hospital
‣ Lloyd Center/District
‣ Rose Quarter
 WHAT’S NEARBY
MISSISSIPPI Fremont/MLK ALBERTA
DISTRICT Multiple projects Irving Park DISTRICT
Back Bridge Station Townhomes
(proposed)

Mid-K Plaza
Standard Dairy
GRAHAM STREET LOFTS

Blueberry Lane Retail/Comm.

Mixed-use Historic
“Green” Townhomes
Redevelopment

EMANUEL
HOSPITAL Nike Outlet 12.5
Retail Upscale Condos

2432 NE MLK IRVINGTON

Retail & Commercial

Sacramento Lofts
Upscale Condos
Albina Community Bank
Mixed-use & affordable housing

LLOYD
CENTRAL DISTRICT
DOWNTOWN &
ROSE EASTSIDE
PEARL DISTRICT
QUARTER DISTRICT
 LIVE/WORK UNITS
‣ Live/work units are
roughed-out.
‣ Tenants can finish themselves or
contract with developer
GRAHAM STREET LOFTS

‣ Space provided for bathroom,

shower basin, utility room.
‣ Floor heating provided.

‣ Units intended to have retail

space in front, small
residence in rear.
‣ Storefronts face MLK Boulevard
‣ Parking lot entrance in rear of unit

‣ Four units, all ground-floor,

each approximately 1,150 ft2.
GRAHAM STREET LOFTS RESIDENTIAL UNITS

‣ Eight total units in ‣ Two-story units include

building. parking.
‣ Four one-story units at 1,065
and 1,198 sqft ‣ Each unit has both front
‣ Four two-story units at ~1,770 and rear terraces.
and 1,927 sqft
‣ Some units have views of
downtown or Mount Hood.
 GREEN CONSTRUCTION
‣ First multi-family project in
Portland to use Performwall.
‣ Compressed Polystyrene
GRAHAM STREET LOFTS

‣ Excellent noise insulation

‣ Hydronic radiant heating in

each unit.

‣ Finishes use all sustainable

materials.

‣ Outlets provided in parking

lot for electric cars.

‣ Stormwater mitigated with

on-site bioswales and dry
wells.
 DEVELOPMENT PROBLEMS
‣ Project missed the market by ~5 months.
‣ Unexpected contractor switch caused delays.
‣ Contractor switch complicated by use of innovative
materials.
GRAHAM STREET LOFTS

‣ Units sold quickly after initial offering in

July 2008.
‣ One Live/Work space sold for $245,000.
‣ One residence sold for $341,500, slightly beating the
market.

‣ Units off market between July 2008 and

January 2009.
‣ Contractor dispute resulted in a lien on property.
‣ Lenders initially denied plan to lease units.
‣ Compromise with lender allowed leasing to begin.
 CURRENT STATUS: LEASES & SALES
‣ Current plan is to lease Unit Unit
# Type
Size Lease Price
(ft2) or Sale Amount
units in short-term to 1 Live/Work 1,170 Not Leased (Asking $1,300)
generate revenue.
2 Live/Work 1,137 Sold July 2008 for $245,000
GRAHAM STREET LOFTS

‣ Developer hopes to 3 Live/Work 1,150 Leased: $1,300

resume sales within 1-2 4 Live/Work 1,150 Leased: $1,300

years. 5 2 Bedroom 1,198 Sold July 2008 for $341,500

‣ LTV currently too low to 6 2 Bedroom 1,065 Leased: $1,400

finance building for long-term
leasing. 7 2 Bedroom 1,065 Leased: $1,400

‣ Leasing feasible with higher 8 2 Bedroom 1,065 Leased: $1,400

rents.
9 3 Bedroom 1,927 Leased: $2,200

10 3 Bedroom 1,786 Leased: $1,900

11 3 Bedroom 1,769 Leased: $1,700

12 3 Bedroom 1,769 Leased: $1,900

 COMPARABLES
Current Comparables: Live/Work Current Comparables: Residential
Rent/ Size Rent Dist. Rent/ Size Rent/ Dist.
Location Comments Location Comments
mo. (ft2) / ft2 (mi) mo. (ft2) ft2 (mi)

3934 NE Triple net 303 NE

GRAHAM STREET LOFTS

$2,475 1,650 $1.50 0.6 $1,150 705 $1.63 2.1

MLK Blvd lease 16th Ave

5265 NE 1231 NE Close to light

$1,525 1,104 $1.38 1.6 $1,368 1,045 $1.31 0.8
MLK Blvd MLK Blvd rail, Lloyd Ctr

5400 NE 1425 NE Close to light

$1,000 760 $1.32 2.2 $1,199 1,000 $1.20 0.8
30th Ave 7th Ave rail, Lloyd Ctr

Graham Averaged for Graham Averaged for

$1,300 1,157 $1.12 $1,700 1,456 $1.17
St Lofts leasable units St Lofts leasable units

‣ Residential & live/work rents slightly less than market.

‣ Probably to get them occupied and generating revenue.
 ECONOMIC FORECAST
‣ Our analysis includes two scenarios.
‣ Forecast A: Lease short-term, then sell.
‣ Higher vacancy allowance reflect time to prepare units for sale.
GRAHAM STREET LOFTS

‣ Sales prices based on current condo sales comparables.

‣ Annual sales price increases assumed to be 3%.
‣ All units sold by the end of year 5.

‣ Forecast B: Lease long-term.

‣ Lease rates adjusted by ~5.3% to reflect market beginning in year 3.
‣ 10-year forecast.

‣ Both forecasts include these assumptions:

‣ Operating expenses assumed to be 15% of gross lease income.
‣ Annual CPI adjustment of 2.5%.
 FORECAST A: LEASE, THEN SELL
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Rental Revenue $84,400 $189,600 $123,600 $46,800 $0
Sales Revenue $586,500 $0 $1,267,243 $1,548,392 $735,000
Other Income $756 $3,075 $10,347 $18,933 $23,113
(HOA Fees)
GRAHAM STREET LOFTS

Potential Gross $671,656 $192,675 $1,401,190 $1,614,125 $758,113

Income

Turnover Vacancy $0 -$18,960 -$18,540 $0 $0

General Vacancy $0 -$28,440 -$12,360 $0 $0
Effective Gross $671,656 $145,275 $1,370,290 $1,614,125 $758,113
Income

Operating -$12,660 -$28,440 -$18,540 -$7,020 $0

Expenses
Net Operating $658,996 $116,835 $1,351,750 $1,607,105 $758,113
Income

Equity -$206,678
Construction Cost -$3,100,000
Property cash flow -$3,306,678 $658,996 $116,835 $1,351,750 $1,607,105 $758,113

Internal Rate of 9.721%

Return
 FORECAST B: LEASE LONG-TERM
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Rental Revenue $84,400 $189,600 $200,028 $205,029 $210,154
Sales Revenue $586,500 $0 $0 $0 $0
Other Income (HOA $756 $3,075 $3,075 $3,075 $3,075
Fees)
GRAHAM STREET LOFTS

Potential Gross $671,656 $192,675 $203,103 $208,104 $213,229

Income

Turnover Vacancy $0 -$18,960 -$20,003 -$20,503 -$21,015

General Vacancy $0 -$7,800 $0 $0 $0
Effective Gross $671,656 $165,915 $183,100 $187,601 $192,214
Income

Operating Expenses -$12,660 -$28,440 -$30,004 -$30,754 -$31,523

Net Operating $658,996 $137,475 $153,096 $156,847 $160,691
Income

Equity -$206,678
Construction Cost -$3,100,000
Reversion Value
Property cash flow -$3,306,678 $658,996 $137,475 $153,096 $156,847 $160,691

Internal Rate of
Return
Assumed
Capitalization Rate
 FORECAST B: LEASE LONG-TERM
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Rental Revenue $210,154 $215,408 $220,793 $226,313 $231,971 $237,770
Sales Revenue $0 $0 $0 $0 $0 $0
Other Income (HOA $3,075 $3,536 $3,536 $3,536 $3,536 $3,536
Fees)
GRAHAM STREET LOFTS

Potential Gross $213,329 $218,944 $224,329 $229,849 $235,507 $241,306

Income

Turnover Vacancy -$21,015 -$21,541 -$22,079 -$22,631 -$23,197 -$23,777

General Vacancy $0 $0 $0 $0 $0 $0
Effective Gross $192,314 $197,403 $202,250 $207,218 $212,310 $217,529
Income

Operating Expenses -$31,523 -$32,311 -$33,119 -$33,947 -$34,796 -$35,665

Net Operating $160,791 $165,092 $169,131 $173,271 $177,514 $181,863
Income

Equity
Construction Cost
Reversion Value $1,818,635
Property cash flow $160,791 $165,092 $169,131 $173,271 $177,514 $2,000,498

Internal Rate of 2.62%

Return
Assumed 10.00%
Capitalization Rate
GRAHAM STREET LOFTS EVALUATION & CONCLUSIONS

‣ Selling units still the best option for highest ROI.

‣ Even then, ROI won’t exceed 10%.
‣ Upcoming refinance could further threaten ROI.

‣ Delays & disputes cost developer dearly.

‣ Close-in neighborhood poised for continued
improvement as market rebounds.