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HA M MEA.GRl:ENE.SILER ASSOCIATES E C O N O M I C C O N S U Li A N T S WA S H I .N G T O . N • AT LA N TA 230 Peachtree Street, N.E. Atlanta, Georgia 30303 November 13, 1968 Mr. C. Bron Cleveland Eric Hill Associates 75 Eighth Street, N.E. Atlanta, Georgia 30309 Area Code 404/524-8441 " Re: Retail Development: Model Neighborhood, Inc. 0 Dear Bron: .l As requested, we have undertaken an analysis of the potential for 1 neighborhood retail development on the property now under option to Mode l Neighborhood, Inc. The two parcels are B-l0b and jB-14 within the Rawson-Washington Urban Renewal Project Are if, · The purp ose of our analysis was to arrive at the indicat ed ·, · value of the pr op erty, considering the__probable scale and charactJr of development. _ -~-- .. - -- -The scale and character of development is determined by: 1. The objectives of Model Neighborhood, Inc. 2~ The market available to support commercial development. 3. The limitations imposed by the size, configuration and actessibility of the property itself, as well as the necessity of maintaining a!l adequate r atio between building_ ~r~~ and parking area, and 4. The pra ctical considerations of maintaining a · r easonable relationship between capitai inves tment r equirements and anticipated retur ns . I t is our unders t andi ng that Model Neighborho od , I nc . has as its primary obj ect ive t he provi s i on of ret ai l trade and se r vi ce facil itie s to serve t he ne i ghbor hood resident s . Ot her considerat i ons are maki ng available emp loym~nt opportun i t ies as we l l as on-thej ob training i n small business operation for area residents .

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�, ·. Mr. C. Bron Cleveland No1ember 13, 1968 Pafe 2 • Because the intent is to develop neighborhood rather than highway-type or traffic-oriented retail establishments (both are possible at the locations under study) , it is our opinion (and the opinion of a qualified commers:ia l real estate leasing agent) that the property would not be used to its highest and best use . . In this case, "highest and best use" is defined as those uses that would generate the highest rents, more cash flow, and therefore justify a higher pur chase price. We must accept as a given the objectives of Model Neighborhood; Inc . ; these take precedent over cash flow considerations and, thus, we begin our analysis with the knowl edge that the pr oposed us es wiil not yie ld the greatest potentia l return . · • In November, 1967, we undertook a preliminary analysis of market support. 1hat an a lysis was given to r epresentatives of Model Neighborhood, Inc. in s ummary t abl e form . The f actors considered w~re popul ation, income and shoppers-goods and convenience- goods expenditures in 1967 and pr oj ected to 1980 on the basi s of A. A.T.S. dat a compiled by A. R. M.P.C. In our judgment, . market support is not a considerat ion since, by any r easonable test, th e prop erty cannot pos sibly be developed (consi dering its l and ar ea) wi th enough floo r space to meet avai labl e market demand . Suffi ce it to s ay that the primary market a lone (,south of I - 20, west of Sout h Freeway, north · of A.&W.P. R.R. and east of C. of G. R.R.) will support at l east 60,000 square f eet of additiona l s hoppers - goods and conveniencegoods floo r area exclusive of s ervice operations. Inf low from the secondary mar ket would be substanti a l but has not been considered. Moreover , t hat space (60,000 square f eet ) can be suppor t ed by att racting on ly 10 percent of local resident s hopper s - goods expendit ures and 40 percent of convenience-goods expenditures . I n swnmary , market suppor t is far i n excess of t he practi cal physi ca l deve l opment potential of t he pr operty under study. In addit i on to the obj ect ives of the spons or ing organi zat i on , we set ·for th one ot her deve l opment as sumption whi ch had a marked effect on our approach t o ·the successful ~tili zation of t he property. Th ere are two properties under option: t he smaller parcel east of McDaniel Street conta ins jus t under 1 . 5 acres; t he l arger parcel west of McDanie l Street contains slightly more than 2.5 acres a total of 4 acres. Under no circumstances should consideration be given to providing a pedestrial connection between the parcels bf bridging McDani e l Street . The r easons for this statement will be come abundantly c l ear l atet in t his report , l etter, but for now it should �.. . ,. ~ ·- Mr. C. Bron Cleveland November 13, 1968 Page 3 be understood that the cost of bridging cannot possibly be justified by the anticipated cash flow regardless of how desirable such a connection might seem from the standpoint of funct i ona l r elati ons hips. · Moreover, we believe that by placing uses on each parcel ·which have fundamentally different activities and traffic generating and servicing characteristics, the need for a physical connection (exclusively for pedestrians) can be reduced considerably. Proposed Us es In the development of the sugges ted r etail and service compl ement and in.estimating rents we have used the services· of one of Atlanta's outstanding commercial leasing agents. This gentleman pr efer s to· donate his t a lents anonymo·u sly because we both under stand · that ot her r eal estate E.~ople are · acting in an advisory capacit y on thi s- proj ect ·. - - · We pr opose t hat Parcel B-14 (1. 486 acres) be devel oped as f ollows: Land or Building Area (Square Feet) Servic e Theater Service Parking Tota l s tat i on ( 400 seats) shops (75 spa ces) 25,000 5,800 4,200 29,700 64 ,700 The s er vice s t ation should locat e on the Georgia Avenue frontage ; the theater and s ervi ce shops on the remaining l and ar ea. Thes e s e r vice shops will generat e qui ck turnove~ pat r onage and t raffic -- much of t he t r affi c may fl ow past drive- in windows i f designs c an incorporat e t his pos sibility. The t heat er ' s patronage will be primari ly in th e evening and can -uti l i ze parki ng not needed by s ervi ce s hops at th at time . ( Incidentally, we checked t he minit heater peopl e. now operati ng her e in Atlanta ·a nd they express ed interest in t he proposed deve lopment . ) The s ervice shops shou l d -be j us t t hat -- shoe repair, l aundry and dr y cleani ng pi ck- up, possibly barber and beauty shops , and simil ar typ es· of per sonal and ·r ep.air services . �J •.

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-Mr. C. Bron Cleveland November 13, 1968 Page 4 We propose that Parcel B-10b (2.51 acres) be developed as follows: .. i3s-co Floor Area (Square Feet) L; 3 ..!,--C tJ

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, 16,000 4,000 10,000 Supermarket Drug Shoppers-goods units c.>---<=>-c", - -·-~·--.......... lpy-02..a / - )o 30,000 Total The shoppers-goods uni"ts could be h·ardware/auto accessories, women's and men's wear or family clothing, shoe stores, piece goods, possibly a small limited-price variety unit, record shop, _optical and possibly even a convenience_-goods unit such as a bakery. I Cash Flow Pro Forma:· Anticipated annua l rents: Theater . Service shops (4,200 sq.ft. @$2.50/sq.ft.) · Service station (net land lease) Sub-total (Parcel B-14) Supermarket (16,000 sq.ft. @$1~50/sq.ft.) Drug (4,000 sq.ft. @$1.65/sq,ft.) Othe r stores (10,000 sq.ft. @$2.00/sq.ft ~) Sub-total (Parcel B-lOb) ., · ·

·. Gross Rents - - - --- ---- - - Operating expenses: 1/ 30,000 sq.ft. @ 35 ¢/sq.ft. Net Operating Income Debt se r vi ce: - - _____ . 40,000 sq.ft. at -$12 /sq;ft . constr uction costs= $480,000 ASs ume i ntere s t @ 10.5 percent constant= NET CASH FLOW 1/ Excludes- se rvice station (net _ ground l eas e) . . • ., $13,000 10,500 4,200 ($27,700) $24,000 6,600 20,000 ($50,600) $78,300 . . --e. \/.' ~ C. -$10,500 $67,800 ?J C 0() ,0 J (t ~<?'30<0 / - $54 ,400 $13 , 400 ._ j l{_t:P· d/ /i , ,/6 / f) �• ~· -.. ' 'l. __ -· .,_ •.'-~ - - --- --- -.-

· . Mr. C. Bron Cleveland November 13, 1968 Page 5 Indicated Land Value , • C • We believe the rent, operating expense and debt service assumptions used in the cash flow pro forma to be realistic. An -· · investor is expected to view them as reasonable and prudent. If the cash flow is capitalized at a 10 percent rate, the property _(both parcels combined) would be worth $134,000. "' '-'-' It is recommended that Model Ne:ighborhood, Inc. buy the property on the basis of projected cash flow, . then sell the land to an institution and lease ·it-·back (sale/lease back) on the basis of cash flow. Under this proposal, Model Neighborhood, Inc. would have to appli the entire anticipated net cash flow to rent on the land. 11rns,. there would be no profit _flowing to the company. On the other hand, the company would be accruing equity interest in the improvements on the property. · l-L ' r.· :,:. · :, ·. -t r - . .-;.. , ', .. Thus, the ins ti tut ion owns the ·1and, the financier of improvements owns the structures and Model Neighborhood, Inc. gets the residual interest in the structures at the termination of the debt service on these improvements. We sincerely hope that this analysis will enable Model Neighborhood, Inc. to move ahead on this worthwhile project. It will be necessary to acquire the land for approximately $134,000, against the current established minimum price of $216,500 -- a reduction of ·$ 82,500. Nevertheless, we believe the established minimum price to be far in excess of the value indicated on the basis of cash flow. Furthermore, we beli~ve our cash flow projections to be realistic and in line with what experienced commercial leasing people are finding in this type of location and given the suggested scale and character of development recommended. t,, If the price of the land can be reduced, we suggest contacting large fin ancia l institutions interested in a,sale/lease back at a 10 percent net net rate. Because commercial banks are restricted in lend1ng on unimproved real estate, their (M.N.I.) best bet is to try insurance companies. lj I I .\ If the sale/lease back can be arranged, the gr oup should then contact a reputable commercial real estate developer t o put to gether a package and handle leasi_ng and management of the development. ,, " ,.. ·' �. .. :.:. . :-., • . . --· I \ \ \ t I Mr. C. Bron Cleveland November 13, 1968 Page 6 ! We are pleased to donate our an alysis to this worthwhile ·effort and we believe other firms and indi viduals in the Atlanta community will be happy to lend a hand as well. Please expr ess our best wishes to Mode l Ne ighborhood, Inc, -~ ,• Sincerely, ' ., Alan E. Welty Principa l _ _:----- :_. · - ----- ------:- AEW/pjh " .r __.:..-- - -- ____.-:.--- _. .;._ --- I �