Box 15, Folder 5, Document 66

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Box 15, Folder 5, Document 66

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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
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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 .
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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
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lpy-02..a
/
-
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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
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(t
~<?'30<0
/
- $54 ,400
$13 , 400
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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.
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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.
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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.
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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,
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Sincerely,
' .,
Alan E. Welty
Principa l
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