Proforma
Revenue and Rent Assumptions
Residential Rent Assumptions
There is a significant housing shortage within Ann Arbor, especially within the past 5 years where net absorption has significantly outpaced delivered units. Due to these supply chain issues, rents for Ann Arbor are significantly higher than the majority of Michigan, as seen above with some of the new deliverables. Summit Pointe will offer sixteen studio apartments and three 1B1B apartments, of which 11 of the studios will be provided at affordable housing rates (See Affordable Units). While the buildings above are more luxurious than Summit Pointe, the rents comparable allow for a justification of around $1,900 for the market rate studio apartments, as the Summit Pointe studios are slightly larger (600sf or $3.16psf). Additionally, the 1B1B will be offered at $2,000, or $2.80psf, generating a total revenue of $15,500 per month for the market rate units. Additionally, the affordable units will be offered at $1,200 a month to serve individuals who make less than 60% AMI per year, resulting in additional revenue of $13,200 per month. The multifamily units within Summit Pointe will yield $344,400 per year.
*Rent based on 2021, No Studio for Uptown Ann Arbor
Retail Rent Assumption
Based on Ann Arbor market data from LoopNet, Retail and Residential typically rent falls around $15-$25 SF/YR, with the downtown market leasing for much higher. Unfortunately, Summit Pointe will be developed with Retail not immediately along the main business corridor, thus the rent will fall to the lower end of this spectrum at around $16 SF/YR. At a grand total of 3,340 of retail space, Summit Pointe will expect total revenue of around $53,440 per year.
Revenue Sources
Market Units: $186,000/YR
Affordable Units: $158,400/YR
Retail Space: $53,440/YR
Net Income/YR: $397,840
Construction Costs
In order to complete an accurate development assessment, there would need to be a significant amount of due diligence performed in order to establish the total construction cost. However, in order to create a baseline assumption, Summit Pointe assumes development costs for both the Retail and Multifamily components of the build, approximated at $430 PSF and $400 PSF respectively. As per the proposed building design, this will cost $1,450,000 for the Retail (3,340SF * $430) and $4,500,000 (11,180 * $400) for the Multifamily space. When adding in the $375,000 for Geothermal, and $350,000 for solar (the major Capital Expenditures), this brings the total deal cost to around $6,675,000. However, the US federal government offers a 30% tax incentive for these sustainable developments, offering $220,000 in tax credits that could be sold to utilize as potential sources of equity.
Operating Expenses
Minimizing Operating Expenses is essential in creating any profitable and desirable development. While there are significant up-front costs associated with the development of Summit Pointe, the capital expenditures will significantly reduce operating expenses. In terms of Energy/HVAC, this property will be entirely self-sustaining with the HVAC, Solar, and VAWT components, so these expenses will be negligible. Additionally, in terms of taxation, the largest expense for most commercial properties, these will be highly mitigated through the DDA TIF provided because of the affordable units within the site. Given that the millage rate in Ann Arbor was 50.79 in 2021, Summit Pointe would pay an estimate of $330,000 a year in taxes ($6,675,000*1/1000*50.79). However, the DDA funding will lower the total taxable basis of the property, traditionally to the SEV prior to development, which will fix the tax rate far lower for 15 years if they follow traditional TIF funding methods.