Box 15, Folder 5, Document 66

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230 Peachtreo Street, N.E.
* Atlanta, Georgla 30303
November 13, 1968 Area Code 404/524-6441

Mr. C. Bron Cleveland

Eric Hill Associates

75 Eighth Street, N.E. Re: Retail Development:

Atlanta, Georgia 30309 Model Neighborhood, Inc.
; Q

Dear Bron:

As requested, we have undertaken an analysis of the potential
for neighborhood retail development on the property now under
option to Model Neighborhood, Inc. The two parcels are B-10b
and |B-14 within the Rawson-Washington Urban Renewal Project
Area. The purpose of our analysis was to arrive at the indicated ~ :
value of the property, considexing | the probable scale and char-
acter 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

3. The limitations imposed by the size, configuration
and accessibility of the property itself, as well
as the necessity of maintaining an adequate ratio
between building area and parking area, and

4. The practical considerations of maintaining a
reasonable relationship between capital invest-
ment requirements and anticipated returns.

It is our understanding that Model Neighborhood, Inc. has as its
- primary objective the provision of retail trade and service facili-
ties to serve the neighborhood residents. Other considerations
are making available employment opportunities as well as on-the-
job training in small business operation for area residents.

Mr. C. Bron Cleveland
November 13, 1968
Page 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 commercial 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 purchase 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 knowledge that the proposed uses will not yield the greatest
potential return.

In November, 1967, we undertook a preliminary analysis of market
support. That analysis was given to representatives of Model
Neighborhood, Inc. in summary table form. The factors considered
were population, income and shoppers-goods and convenience-goods
expenditures in 1967 and projected to 1980 on the basis of A.A.T.S.
data compiled by A.R.M.P.C. In our judgment, market support is not
a consideration since, by any reasonable test, the property cannot
possibly be developed (considering its land area) with enough floor
Space to meet available market demand. Suffice it to say that the
primary market alone (south of I-20, west of South Freeway, north
of A.§W7.P. R.R. and east of C. of G. R.R.) will support at least
60,000 square feet of additional shoppers-goods and convenience-
goods floor area exclusive of service operations. Inflow from the
secondary market would be substantial but has not been considered.
Moreover, that space (60,000 square feet) can be supported by
attracting only 10 percent of local resident shoppers-goods expendi-
tures and 40 percent of convenience-goods expenditures. In summary,
market support is far in excess of the practical physical develop-
ment potential of the property under study.

In addition to the objectives of the sponsoring organization, we

set forth one other development assumption which had a marked effect
on our approach to the successful utilization of the property. There
are two properties under option: the smaller parcel east of McDaniel
Street contains just under 1.5 acres; the larger parcel west of
McDaniel 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 by bridging
McDaniel Street. The reasons for this statement will become
abundantly clear later in this report letter, 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 functional relationships. Moreover, we believe that by plac-
ing uses on each parcel which have fundamentally different ac-
tivities and traffic generating and servicing characteristics,
the need for a physical connection (exclusively for pédestrians)
can be reduced considerably.

Proposed Uses oe

In the development of the suggested retail and service comple-
ment and in .estimating rents we have used the services of one

of Atlanta's outstanding commercial leasing agents. This gentle-
man prefers to donate his talents anonymously because we both
understand that other real estate people are acting in an advi-
sory capacity on this_project. ~~

We propose that Parcel B-14 (1.486 acres) be developed as follows:
| Land or |
(Square Feet)

Service station : ~ 25,000

Theater (400 seats) “5,800
Service shops 4,200
Parking (75 spaces) 29,700

Total 64,700

The service station should locaté on the Georgia Avenue frontage;
the theater and service shops on the remaining land area. These
service shops will generate quick turnover patronage and traffic
-- much of the traffic may flow past drive-in windows if designs
can incorporate this possibility. The theater's patronage will
be primarily in the evening and can utilize parking not needed by
service shops at that time. (Incidentally, we checked the mini-

. theater people. now operating here in Atlanta and they expressed

interest in the proposed development.) The service shops should

‘be just that -- shoe repair, laundry and dry cleaning pick-up,

possibly barber and beauty shops, and similar types of personal
and repair services.

‘Mr. C. Bron Cleveland
November 13, 1968
Page 4

We propose that Parcel B-10b (2.51 acres) be developed as
follows: :

Floor Area
(Square Feet)

Supermarket -16,000 tet. fer 2a5

Drug 4,000 oe

Shoppers-goods units 10,000 *
Total , 30,000

The shoppers-goods units could be hardware/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. ,

Cash Flow Pro Forma:

Anticipated annual rents:

Theater $13,000
-Service shops (4,200 sq.ft. @$2.50/sq.ft.) 10,500
| Service station (net land lease) 4,200
Sub-total (Parcel B-14) ($27, 700)
Supermarket (16,000 sq.ft. @$1.50/sq.ft.) $24,000
Drug (4,000 sq.ft. @$1.65/sq.ft.) 6,600
Other stores (10,000 sq.ft. @$2.00/sq.ft.) 20,000
Sub-total (Parcel B-10b) .. ($50,600)
Gross Rents — -— aie me ' $78,300 .
Operating expenses: 1/ mc
30,000 sq.ft. @ 35¢/sq.ft. -$10,500
Net Operating Income $67,800
Debt service: LL ae
40,000 sq.ft. at -$12/sq.ft. ‘construction
costs = $480,000
Assume interest @ 10.5 percent constant = -$54,400

1/ Excludes service station (net ground lease).


6 £9300
300 |

Mr. C. Bron Cleveland
November 13, 1968
Page 5 _

Indicated Land Value

We believe the rent, operating expense and debt service assump-
tions used in the cash flow pro forma to be realistic. An scwacrist AD
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 Neighborhood, 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 apply. the entire anticipated net cash flow to rent on

the land. Thus, 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.

Thus, the institution owns the land, 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. Further-
more, we believe 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.

If the price of the land can be reduced, we suggest contacting
large financial institutions interested in a:sale/lease back at

a 10 percent net net rate. Because commercial banks are restricted
in lending on unimproved real estate, their (M.N.I.) best bet is

to try insurance companies.

If the sale/lease back can be arranged, the group should then
contact a reputable commercial real estate developer to put to-
gether a package and handle leasing and management of the develop-
ment. 2

Mr. C. Bron Cleveland
November 13, 1968
Page 6

We are pleased to donate our analysis to this worthwhile effort
and we believe other firms and individuals in the Atlanta
community will be happy to lend a hand as well. Please express
our best_wishes to Model Neighborhood, Inc.


CX -

Alan E. Welty

Principal eee By eS ts ogee


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