Background

The $1920$s Desert Club has been purchased by Green Man Economic Development Corp $($Green Man$)$ for $$98,000$ in $2020.$

After a summer of investigation and cleaning out the abandoned insides of almost $5$ @ $20$ yard dumpsters of trash, Green Man found a deteriorating foundation, geothermal water intrusion, insufficient electricity and a sagging porch.

Construction costs $($Hard Costs$)$ are estimated at $$250/$SF for the $4,000$ square foot structure, with the GC taking $10\%$ of that in addition as a fee. Soft costs include: Architecture & Engineering, Legal, Finance, Insurance, Taxes during construction, developer$$s overhead, a debt service reserve and a contingency of $5\%($of the total of all of these soft costs$).$ A$+$E estimates are $$75,790$ inclusive of architectural, structural, civil, survey, Geotech, asbestos, mechanical design, electrical, and coordination and profit. In addition to the A$+$E costs, there is $$50$k of legal, finance and insurance; $$2,250$ of taxes during construction, debt service reserve is $$16,700$ and a $5\%$ contingency on soft costs. The debt service reserve is a $$rainy day fund$$ for any years that fall short of the income necessary to pay debt service, and is in addition to the annual debt service payments, which begin year $1.$ The operating reserve is funded at $$10,000$ this should not be included in the contingency calculation..

Green Tree has floated $$600,000$ of $$Social Engagement Notes$$ which are $5\%$ debt. The debt is fully amortizing over $15$ years. Debt service begins year $1,$ and there is no $$interest only$$ period. The first year$$s debt service payment should be included in the capital budget $($but is not considered a $$soft cost$).$ If the project is sold prior to then, the remaining debt balance at that time will need to be paid off. Green Man has also put up $$650,000$ of equity itself. The County has offered to fill the $$gap$$ with CDBG money. How much is needed to make the project happen?

Green Tree estimates $2022$ for construction and $2023$ being a partial year of operations. Room revenue in $2023$ is estimated at $$119,987,$ and in $2024$ $$151,070,$ increasing thereafter by $5\%$ per year.

The caf$$ is expected to pay $$7$k in rent in $2023,$ $$14,400$ in $2024$ increasing at $5\%.$ The incubator is expected to pay $$6$k in $2023,$ $$12$k in $2024,$ increasing at $5\%$ thereafter. Vacancy is estimated at $7\%$ a year across all revenues. There are no expected CAM or reimbursements.

Labor costs are expected to be $$30,000$ in $2023,$ and to increase thereafter at $5\%$ per year. Many expenses are estimated as a percentage of net revenue: Management $(5\%),$ Maintenance and Repairs $(15\%,$ but only starting in $2024),$ and operating reserve $(5\%$ but only starting in $2024).$ Other expenses begin in $2023$ and then grow $5\%$ a year: Utilities $($$$3,816),$ Real Estate Taxes $($$$3$k$),$ Insurance $($$$5$k$),$ Marketing $($$$5$k$),$ Legal $($$$5$k$).$ G&A is considered to include Insurance, Marketing, Legal$/$Accounting$,$ and Operating Reserves.

The annual debt service is to be calculated using an amortization table on the Social Engagement notes. The first year should be treated as capitalized cost in the Sources & Uses $($and is in addition to the debt service reserve$).$

Questions: $($Answer in table form$)$

$$ Create Desert Club $$Pro Forma$$ financials.

$$ Create a Sources and Uses Development Budget

$$ Create an operating budget through $2032$ operation

$$ Create a profitability analysis: assume sale in the final year at a $7\%$ cap rate using that year$$s NOI

$$ How much CDBG money must be requested by Green Man?

$$ What is the IRR to Green Man?

$$ Assume Green Man is able to get more CDBG upon request. Since Sources and Uses must be balanced, for every dollar of CDBG$,$ Green Man can reduce the amount of equity it puts in$.$ How much CDBG is needed to deliver a $12\%$ IRR to Green Man?