Fin 3509/Catawba River Apartments/Fall 2016

You are the broker for an entrepreneur who has hired you to examine the feasibility of purchasing the Catawba River Apartments. The owners are considering listing the property for sale for $8,500,000. The complex consists of 50 units with 20 one-bedroom units, 20 two-bedroom units and 10 three-bedroom units. You are asked to develop a new property management plan for the Catawba River apartments. The current owners have provided you with the below operating statement.

Catawba River Apartments

GROSS RENTS:

1B: 20 x $1,200 x 12 = $288,000

2B: 20 x $1,500 x 12 = +360,000

3B: 10 x $2,200 x 12 = +264,000 $912,000

OTHER INCOME

Convenience store revenues ($3200 x 12) $ 38,400

Boat Docking Fees (20 x $75 x 12) 18,000

Pool Fees ($125 per season x 40) 5,000

Retained Security Deposits (5 x $1,500) 7,500

GROSS REVENUE $980,900

Vacancy (10% x GR) - 98,090

NET REVENUE $882,810

LESS EXPENSES

Utilities ($1200/mo) $14,400

Maintenance ($1600/mo) 19,200

Landscaping ($200/mo) 2,400

Advertising ($200/wk) 10,400

Waste/Recycling ($800/mo) 9,600

Miscellaneous (5% x NR) 52,933

P. Taxes 60,000

P. Insurance 12,000

Convenience store salaries 60,000

P. Mgmt (6% x NR) 63,519 - 304,452 NET INCOME $ 578,358

Market Analysis:

Your market analysis reveals that the property is adjacent to the Catawba River and Catawba River Recreational Park which is maintained by the U.S. Forestry Service. The apartment complex maintains a dock and has available 20 boat slips available for rent to tenants on an annual basis. An inspection of the rent roll reveals that the tenants are mostly older, middle income couples and singles that inhabit their units for 3-6 six months of the year but maintain annual rental agreements. The complex also has a pool that charges pool fees for use to tenants and a clubhouse that houses a convenience store that generates income for the owners. An inspection reveals that the boat slips usually have about two spaces vacant per year. The convenience store currently has six full and part-time employees with salaries that average about $60,000 annually.

Your management plan consists of you contacting a regional convenience store chain and offering to turn the store over to them to manage. They would in turn pay the owner $2,000 per month in rent. Property management would be 8% of EGI.

1. Restate the new Operating Statement for the Catawba River Apartments assuming your management plan is put into place along with any other changes you consider appropriate given the prior operating statement.

2. If your client requires a minimum 10% return does your management plan meet their requirements? Your client has informed you that they would expect to hold the property for 8 years and sell under the assumption of a 2% annual rate of appreciation. Costs of sale would be 3%.