Your team works at Storage Now, an Indianapolis-based, self-storage company, as analysts on the development team....

Transcribed Image Text:

Your team works at Storage Now, an Indianapolis-based, self-storage company, as analysts on the development team. Your team's responsibilities include sourcing and evaluating self-storage development opportunities. Development deals are funded by debt and equity. The equity investors want to make sure the underwriting contains reasonable assumptions and that they receive fair, risk-adjusted investment returns. Your team is investigating the purchase of 10 acres of land directly behind Storage Now in Fortville, Indiana. You are tasked with underwriting the deal and preparing a pitch book to present to Principals outlining your investment recommendation. The principals prefer a 7-year investment timeline (1 year of construction + 2 years of lease up + 4-year hold then sale). When underwriting the development opportunity, feel free to alter anything within the variable assumptions section, but you should be able to support your changes. For simplicity, a fixed assumptions table is provided including the proposed unit mix with rents at construction start, operating expenses, the development timeline, development costs, and financing terms. Assume all buildings are delivered on the date of construction completion and units begin leasing up at completion. Address Number of Units Construction Start Date Construction Length Construction Completion Date Lease-up Length Stabilization Date Total Rentable SF Fixed Assumptions Development Overview 1360 E Broadway St, Fortville, IN 46040 530 3/31/2025 12 Months 3/31/2026 24 Months 3/31/2027 99,775 Land Overview Land Acreage Land Cost 10.0 Acres $700,000 Hard Construction Costs Hard Costs (including site work & GC Fees) $55.00 per SF Soft Costs Title & Recording Expense $50,000 Due dilligence, Legal, Closing Costs $100,000 3rd Party Reports (Survey, Environmental, Appraisal) $15,000 Construction Financing Max LTC (Loan to Cost) 65% Min DSCR 1.25 Amortization (For Sizing Purposes Only) 30 Years Term 36 Months (Interest Only) Interest Rate 8.00% Origination Fee 1.00% Permanent Financing Max LTV (Loan to Value) 80% Min DSCR 1.25 Amortization Interest Rate Origination Fee Selling Costs 30 Years 6.00% 1.00% Other Assumptions 1.50% Annual Income Growth Rate Annual Expense Growth Rate Reversion Cap Rate Vacancy Variable Assumptions Unit Mix Unit Type 5x10 10x10 10x12 (Climate Controlled) # of Units Unit Size (SF) Monthly Rent/Unit 10x15 10x20 20802 25 50 $65 100 $90 50 120 $135 150 $105 75 200 $125 10x25 60 250 $140 10x30 50 300 $155 10x40 40 400 $200 12x25 (Parking) 15 300 $45 9x15 (Parking) 15 135 $45 Annual Operating Assumptions Other Income $38,160 Administrative Expense $27,000 Advertising & Marketing Expense $8,100 Payroll Expense $62,000 Utilties Expense $8,100 Operating & Maintenance Expense $10,800 Landscaping & Grounds Expense Insurance Expense Real Estate Taxes Replacement Reserves $3,780 $9,720 $73,278 $8,100 3.00% 2.00% 7.00% 10.00% Your team works at Storage Now, an Indianapolis-based, self-storage company, as analysts on the development team. Your team's responsibilities include sourcing and evaluating self-storage development opportunities. Development deals are funded by debt and equity. The equity investors want to make sure the underwriting contains reasonable assumptions and that they receive fair, risk-adjusted investment returns. Your team is investigating the purchase of 10 acres of land directly behind Storage Now in Fortville, Indiana. You are tasked with underwriting the deal and preparing a pitch book to present to Principals outlining your investment recommendation. The principals prefer a 7-year investment timeline (1 year of construction + 2 years of lease up + 4-year hold then sale). When underwriting the development opportunity, feel free to alter anything within the variable assumptions section, but you should be able to support your changes. For simplicity, a fixed assumptions table is provided including the proposed unit mix with rents at construction start, operating expenses, the development timeline, development costs, and financing terms. Assume all buildings are delivered on the date of construction completion and units begin leasing up at completion. Address Number of Units Construction Start Date Construction Length Construction Completion Date Lease-up Length Stabilization Date Total Rentable SF Fixed Assumptions Development Overview 1360 E Broadway St, Fortville, IN 46040 530 3/31/2025 12 Months 3/31/2026 24 Months 3/31/2027 99,775 Land Overview Land Acreage Land Cost 10.0 Acres $700,000 Hard Construction Costs Hard Costs (including site work & GC Fees) $55.00 per SF Soft Costs Title & Recording Expense $50,000 Due dilligence, Legal, Closing Costs $100,000 3rd Party Reports (Survey, Environmental, Appraisal) $15,000 Construction Financing Max LTC (Loan to Cost) 65% Min DSCR 1.25 Amortization (For Sizing Purposes Only) 30 Years Term 36 Months (Interest Only) Interest Rate 8.00% Origination Fee 1.00% Permanent Financing Max LTV (Loan to Value) 80% Min DSCR 1.25 Amortization Interest Rate Origination Fee Selling Costs 30 Years 6.00% 1.00% Other Assumptions 1.50% Annual Income Growth Rate Annual Expense Growth Rate Reversion Cap Rate Vacancy Variable Assumptions Unit Mix Unit Type 5x10 10x10 10x12 (Climate Controlled) # of Units Unit Size (SF) Monthly Rent/Unit 10x15 10x20 20802 25 50 $65 100 $90 50 120 $135 150 $105 75 200 $125 10x25 60 250 $140 10x30 50 300 $155 10x40 40 400 $200 12x25 (Parking) 15 300 $45 9x15 (Parking) 15 135 $45 Annual Operating Assumptions Other Income $38,160 Administrative Expense $27,000 Advertising & Marketing Expense $8,100 Payroll Expense $62,000 Utilties Expense $8,100 Operating & Maintenance Expense $10,800 Landscaping & Grounds Expense Insurance Expense Real Estate Taxes Replacement Reserves $3,780 $9,720 $73,278 $8,100 3.00% 2.00% 7.00% 10.00%