Category: P40 Downtown
Overall there was good news for a room full of business leaders gathered at the Marriott Hotel in Downtown Augusta. The 2020 forecast was hosted by the Terry College of Business at UGA, and presented by Dr. Ben Ayers and Cal Wray.
For an in-depth review, real the Amanda King’s article in the Augusta Chronicle.
New Apartments Coming to Downtown Augusta and implications to Rental Rates
Damon Cline reported on Monday that Downtown Augusta will see one of the first downtown multifamily projects in decades at the corner of 10th and Ellis next year. Known as “Connell’s Corner”, and long home to the local favorite “Sandwich City”, the property will soon be the home to a new high-end four-story apartment building.
‘It will boast a covered and gated 57-space parking lot, ground floor retail/restaurant space, a rooftop patio and high-tech features such as keyless entry – the types of amenities that appeal to urban-minded young professionals migrating to the downtown area.’
The story was broken by Damon Cline, who also shared some statistics and details about the overall rental market in Augusta. Overall, apartment rents are rising quickly, and what was once considered a “Class-A” apartment renting at $1.15-$1.25/SF/Month, has been eclipsed by new super-luxury apartments renting at $1.30-$1.40/SF/Month. This new class of apartments come equipped with similar finishes found in luxury homes, including granite and high-end appliances.
We recently discussed charting rent curves and what they tell us about rent rates and forecasting rent rates. I think this is a great case study. Here’s what the rent curves for downtown apartments looks like:
You can download the spreadsheet here. These are asking rates at the major downtown apartment complexes vs. downtown lofts and upstairs apartments. You can see a big difference between the two. I think what we’re seeing is that the curves are moving out–driven by a higher demand for downtown apartments like Canalside and Ironwood. My guess is that the Atticus could probably plot a new curve–maybe ask $2.15 for their smallest units, and maybe $1.50-$1.65 for their larger ones. If they’re successful with this project, I think we’ll start to see redevelopment of buildings that have up to now been impossible to redevelop with existing rental rates.
What are your thoughts? What are your observations about Augusta’s rental market? Do you think Downtown will continue to grow and develop?
Development Authority negotiates Greenjackets Stadium Lease
The former home of the Augusta Greenjackets is getting a second life. Last week Augusta leaders agreed on a deal to bring more entertainment to the Augusta area. A 10-year master lease agreement to bring big acts and events to the Lake Olmstead Stadium will have us seeing the area around Lake Olmstead transformed starting this April. The Augusta Commission voted and approved for the Augusta Development Authority’s “stadium master lease” of the facilities. C4 Live, the subtenant, will be spending hundreds of thousands of dollars to make upgrades to the structure and in addition to Masters Week, we can expect other entertainment events through out the year. This is great news for Augusta and this piece of land getting a second life!
What’s a master lease, you may ask? Here’s Bigger Pocket’s summary, but in short, it’s when an owner leases a space to a tenant who then has the right to sublease to another tenant. The city of Augusta will lease to the EDA, who in turn will lease to C4 Live. This is generally good when the landlord trusts the master tenant, but has no relationship to the subtenant–the master tenant is guaranteeing the performance of the lease.
Using Rent Curves to Study Multifamily Rental Rates
This is Jonathan Aceves with Meybohm Commercial Real Estate, advising business leaders and helping them make wise real estate decisions. Today we’re going to be discussing Multifamily Rent Curves.
How does one set out to study multifamily rental rates? We do this by building a rent curve. Let’s say you want to study the rental rates for housing in Martinez, GA. We would do a survey of rental rates at apartment complexes in the area, and plot them on a graph. The graph would start out looking like this:
Then we would separate them by class. Class is a ranking system given to multifamily properties by investors, generally A, B, C, and D. A properties are generally newer, amenitized, and really nice. B properties are usually good, but maybe a little older, maybe not the same level of amenities. C properties are in not-so-great areas, in fair condition, usually schools aren’t so good. D properties are in bad condition and really rough areas, these are the kind that you wouldn’t go to at night. Once you’ve broken them apart by class, you draw a curve over them. You would end up with something like this:
It is interesting to note the steepness of the curve, and the distance between the different curves. Another thing to note is that market changes shift the curves. This is what we see in rapidly gentrifying areas—the entire curve moves out.
So how do you use the rent curve? Well this helps investors identify opportunities for repositioning. It also helps you identify management problems. If I see a complex with below-market rents, I try to figure out why. Is it a problem that an investor can fix?
Thanks for reading! Please like and share with those you think might benefit from this. We’d love to hear from you! What are your thoughts about rental rates?
GA Power gives $50K to DDA for Downtown Storefront Improvements
Georgia Power is starting off 2020 with a pledge of $50,000 toward storefront improvements in downtown Augusta. This is more than triple what they have donated in the past. For the previous two years they have donated $15,000 each year which was used to create a facade matching-grant program. It has helped with projects but it has gone quickly.
The company’s regional external affairs manager, Stephen King, presented the Augusta Downtown Development Authority with the symbolic check. He said, “It doesn’t come with any stipulations other than for the growth and development of downtown.” The program developed is a matching-grant program that offers up to $5,000 to downtown business owners who invest an equal amount in exterior improvements to their spaces.
For more details see Augusta Chronicle Article: https://www.augustachronicle.com/business/20200109/georgia-power-donates-50000-to-downtown-improvements?template=ampart
Contact the DDA for more information on how to apply for the grant:
Depot developer Bloc Global threatens to walk from Downtown deal
Today the Augusta Chronicle reported that it looks like the proposed $94 million dollar Augusta Riverfront Depot project is teetering on the edge of collapse. Bloc Global, the developer, has asked for the return of their $50,000 held in escrow, or they will terminate from the deal.
In 2016, the commission authorized the city DDA to market a 6.3-acre riverfront parcel at the corner of Reynolds and Sixth streets and we later learned of a pretty major conflict over the employee parking lot at the site that was provided for Unisys Corp the year before.
What are your thoughts on this project? What do you think will be the result?
Read the full story:
https://www.augustachronicle.com/news/20200107/depot-developers-threaten-to-withdraw-from-deal
Downtown Residential Market Report
https://www.youtube.com/watch?v=CGggUa-lkUw&feature=youtu.be
Today we’re going to cover one of our pet subjects, the Downtown Augusta residential market, specifically Olde Town. Click here to download Olde Town Q4 2019 Market Report
What’s going on: Prices are rising–homes bought at retail (livable, decent condition) have risen from about $63/SF on average to just under $80/SF on average over four years–that’s about a 26% increase. As a whole, the average price has risen from about $30/SF to about $57/SF–almost double–over the past four years.
Part of what’s happening is that there are lots of abandoned and derelict homes that have been purchased, along with the rise of young professionals moving downtown. The average buyer in Olde Town today is a young, single, professional female. She is educated, trendy, and wants to be connected to the neighborhood and the downtown.
In 2010 when I bought my home in Olde Town, things were much different. The neighborhood was ‘busier’–more foot traffic, and there was a significantly higher percentage of section 8 housing in the neighborhood. Over the past ten years families have moved downtown–many connected to First Presbyterian Church and Christ Community Health Services (a non-profit heath center located in the middle of Olde Town). The rents started rising, investors started buying and renovating the homes, and soon things started changing.
In the past two years is when I’d say I’ve seen the most change. The main section 8 property in our neighborhood, Olde Town Apartments, had their tax credit expire and has been renting and selling their properties at market rate (primarily to young professionals). Many of the derelict properties on the southern edge of the neighborhood have been demolished, and plans are underway for new homes to be built.
My prediction is that the trends we see will continue, and that home values will continue to climb. I think that if the trend continues, in the next two years prices/SF for homes sold at retail will surpass $100/ft, at which time we will hit a tipping point which will open the neighborhood to new construction, and we will see many of the functionally obsolete homes demolished and new homes built. All this is great for our city, and for the greater urban community in Augusta, GA.
What are your thoughts? Where do you see the market downtown headed?
Downtown Rental Market Update
Today we’re going to be discussing the Olde Town Rental market update. Click here to download the Rental Study.
Overall, we’ve seen the rental rates in Olde Town (Downtown Augusta’s primary residential neighborhood) climb from an average of $.67/SF to just under a dollar per SF over the past four years. That’s a 32% increase, about 8% per year. What’s going on?
Well, as we’ve already mentioned, Cyber and Medical young professionals are choosing to live downtown. That’s driving up rents and housing prices. Also, investors are renovating properties, and so we are seeing more available rental properties that are in in decent condition.
A decent case study is 107/105 Fourth Street. We recently helped a buyer from Virginia acquire those apartments. The previous owner had owned them for over 15 years, and they were in pretty rough condition with low rents. The new owner is going to make an investment into renovating the units, and with the help of professional property management, they will lease them at market rates. The location of the property is great–the condition was terrible. Now that complex (surrounded by young, professional homeowners) will probably target young professional or medical tenants, and we’ll see it on our rent study next year, my guess is on the higher end of our graphs.
You’ll also see in the graph a strong correlation between the “Score” and the price per foot. Our scoring system is a somewhat arbitrary numbering of properties by both location and condition from 1 to 5, and then averaging these two numbers together. Thus, a property with location of 4 and condition of 5 scores a 4.5 in this measure. The number again is somewhat arbitrary, but the correlation is quite strong. So I would assign a property in rough condition and poor location an estimated rental rate of .65/ft, while a property with a good location and great condition an estimated rental rate of .95/ft. Note that this measure doesn’t take into consideration size, which the first graph makes clear is highly correlated with the rental rate.
I think this is great news for our Downtown rental market. Augusta is changing, and I believe that the rising tide will lift all ships.
What are your thoughts? What has your experience been in the rental market?
SharedSpace closes Coworking facilities at 901 Greene Street
SharedSpace announced last week that they were closing their 15,000 SF facility on Greene Street. The Atlanta-Based co-working company still has two facilities in Atlanta. The property is located on the corner of Greene Street at ninth, and has been listed for sale at 3.975M, or roughly $260/SF, and advertised for lease at $23.95/SF/Yr. This is a beautiful facility, fully renovated, with 63 parking spaces.
I think the situation is instructive about the true cost of occupancy downtown. The number many use to calculate historic renovations is ~$150/SF. If you purchase shell space at $50/SF, and have to find parking, you could end up with $250/SF invested in a space very quickly.
For more information, see Damon Cline’s Article: https://www.augustachronicle.com/business/20191230/sharedspace-closes-augusta-office
What are your thoughts about the Downtown Market? Or Co-working in general?
Augusta Medical Office Building Market Report
This is Jonathan Aceves wth Meybohm Commerical here with a brief update on the Medical office market. Click here to download the Report.
Overall, well-located and in good condition, medical office space in Augusta is leasing for around $18/SF, and selling for around $150/SF. As expected, offices in Evans commanded a premium (around $200/SF), and offices around Trinity sold at a discount ($120/SF). This is slightly higher than standard office space, and tends to be clustered around hospital facilities: University, Doctors, AU Health, and Trinity(University Hospital Summerville)
One outlier that we see is with the rise of Urgent and Prompt Care clinics, which tend to lease in line with NNN leased retail space. We are seeing them leasing at around $30/SF NNN and trading at corporately-guaranteed retail cap rates. There has definitely been a rise in Medical/Dental/Physical Therapy providers taking space in shopping centers and even developing practices on retail out-parcels. The impact is that these lease rates fall in line with their competitors for these spaces.
POB Buildings. The POB buildings are a good milestone–what would it cost a physician to locate inside the hospital complex, with a full-service lease? Asking rates there tend to be around $25/SF Full Service, potentially you could lease space there between $20-21/SF. If we back out the full-service items, it’s a helpful comparison. That might get us to a rate around 18/SF.
Renovation of office buildings. Another helpful number is what would it cost a physician or dentist to purchase a 4000 SF building and convert it to a medical practice? Our guess is that in good condition, it would cost around $25/SF. so in theory an office building could be purchased and 100-150K invested in it to make the conversion. Alternatively, an office could be leased, and the improvements amortized into the rent, which would equate to 4-5/SF/YR on the rate. At those numbers, it is slightly more cost-efficient to lease or purchase an existing medical office than to convert an office building into a practice (which makes sense).
On a related note, we are seeing a large demand for purchase of NNN leased medical office space. If you own a practice and the real estate, it may be a great retirement planning tool to investigate the value of leasing back the building and selling the real estate. Also if you are selling your practice or looking towards retirement, it might be a good idea to sell the practice along with a lease on the building, and then sell the leased building. That may be a great way to cash out of your investment and give your new partners a fixed and budgetable cost.
Notable Sale:
Augusta GYN sold their building earlier this year to University Hospital.
Notable Lease:
Pruitt Health. 12.60/FT, Modified Gross. 1220 Augusta West Parkway.
Thanks for reading! Please let us know your thoughts on the market for medical office buildings. What are you seeing? What’s your experience been?