the County's RFP provided meaningful cost savings to developers due to the transit-oriented nature of the development including diminished residential garage requirements. Complying with other RFP requirements was quite expensive. For example, renovation and relocation of the station that included improving the station's escalators, installing new flooring at the platforms, and "beautifying" the general area would cost $12.75 million according to Arnaud's architects and engineers. The 7.5 acrea site was located at the intersection of some of Miami's most exclusive neighborhoods - Coral Gables to the south, Coconut Grove to the east, and Downtown Miami . The site was a surface parking lot for the Douglas Road Metrorail Station. The immediate vicinity was mostly transient, with good vehicular traffic but limited pedestrian circulation. There were three new residential projects with a total of 719 units in the pipeline for the area immediately surrounding the Development Site. Most of these projects were being developed by national merchant builders, backed by institutional capital partners. Even though cars were the primary mode of transportation in the area, public transportation access from this site was unparalleled. The site provided immediate access to most of Miami's public transport infrastructure (i.e., Metrorail, bus system & trolley). Additionally, the site was six miles away from the Miami International Airport and four miles from Miami's central business district (Brickell & Downtown). The shape of the site being auctioned was also a matter for consideration. The site bordered a Miami- Dade Water and Sewer parking garage, which posed a challenge for the design. The team would need to engage an architectural company to develop a massing plan that would be viable given the unusual shape of the land . Zoning Requirements The zoning laws and regulations provided significant flexibility for the development team to determine the uses as they saw fit. The two main requirements that the team had to satisfy were: 1) A minimum development area of 467,104 sf and a maximum development area of 3,238,408 sf. AND 2) A maximum of 1,200 dwelling unitsb (including multifamily, micro-unit, condo

and hotel uses, but not office nor retail). The only other boundary was a height limitation of 35 stories. 1 acre = 43,560 square feet. The 13th Fl-Adler development team performed a market analysis to determine the most profitable use for the site. In this exercise, it was key to consider zoning, individual profitability of uses, and the ability of the market to absorb additional supply. The team desired to be "placemakers," creating a true live, work, and play environment that was compact and pedestrian-friendly community. The first goal was to get a rough sense of what uses could be most favorably built by comparing the cost to build to the stabilized value. Multifamily Rental rates averaged around $2.70/sf/month and operating expenses for Class A apartment buildings averaged approximately $9,500 per unit per year. The apartments would be designed with 1, 2 & 3 bedroom options (on average, there would be 2.5 people per unit). Stabilized vacancy would be around 5%. Absorption for this product was expected to be strong and the average unit size would be 900 sf/ unit. Construction hard costs were expected at $230 per square foot and soft costs were forecast at 25% of hard costs. Class A Multifamily properties were currently trading at or below a 5.25% cap rate.d Workforce Housing / Micro-units Another possible residential use was a micro-unit product. This product would be offered to lower income individuals and be available at a lower monthly rent premium due to its smaller size. The team expected this product to be well-received by the County because at least 12.5% of the units were requested, by the County, to be priced below the $1,500/unit/month price point. Arnaud recalls, "We knew that one Commissioner was totally focused on the amount of workforce housing units. We wondered if we might differentiate our proposal by slightly exceeding the 12.5 % request." Arnaud's underwriting assumptions were 450 SF units at a rental rate of $3.27/sf/month with operating expenses of $7,000 /unit /year. The occupancy and the exit cap rate assumptions were the same as multifamily. Hard construction costs were expected to be $265/sq. ft. with an additional 25% add on for soft costs. From an economic standpoint, the capitalization rate on a per unit basis was almost identical to the traditional multifamily case. Finally, most micro-units would be designed as 1-bedrooms so the average number of people living on a given unit would be 1.5. The micro-unit offered further diversification of uses at Link Douglas and due to the high demand for affordable apartments the product would likely be quickly absorbed into the market. However, this would be the first test of micro-units in the Miami market. Condominium Condominiums in A+ locations were selling at $750-$1,000/sf. The team questioned their ability to sell the condos at those premiums since their location was not considered A+ and for that reason underwrote the condo sales at $500/SF. The average unit size for a condo was 800 square feet and each typically housed 2 people. Hard costs for construction would be around $260 per square foot with an additional 40% for overhead (soft costs, marketing and sales). Arnaud felt that condos could be very risky because the pricing and pace of sales were extremely sensitive to interest rates, local economic confidence, and increasing supply. Moreover, due to public pressure, the team felt that the Miami-Dade County might prefer market rate multifamily rentals to condominiums. Given these factors, if condos were to be part of the plan, Arnaud felt that the profit margins should well exceed 30% of the sales price. d When performing a preliminary BOE analysis, developers account for their overhead, profit and development risks by requiring a yield on development cost that is 1.0 -2.0% higher than the current cap rate for comparable product. This spread is known as the "Development Spread". Arnaud was comfortable underwriting a 1.25% development spread in this transaction due to the uniqueness of this opportunity.

Office

New Class A office space in the surrounding markets was being offered at an average rent of $35/sf/year (triple net)e. Construction hard costs were expected at $220 per square foot and soft costs were forecasted at 25% of hard costs. Vacancies were close to 20% which was worrisome for the team. The inventory in the market was ~26M SF and the only market that was seeing notable absorption was Brickell with 140k SF/year. The rest of the markets in the area (Downtown, Coral Gables, Coconut Grove and Kendall) had neutral absorption. The team was worried about the impact of the high vacancies on rents going forward and did not feel comfortable underwriting at above $27/sf/year (triple net). If they were to build more than 300,000 square feet (or 1-1.25% of the total office stock) they thought that rents could decline to $25/sf/year due to the poor market absorption. At the same time, they wondered if there was significant added value in having office space for the "placemaking" aspect of the development. They assumed a typical worker would require 125 sf of office space (including common areas). Office was currently being traded in the market at a 6.5% cap rate.

Lodging

The team sought advice from specialized consultants for the hotel use. The consultants' judgement was that the market could support a 150-room hotel (average unit size of 325 sf). The total hard costs to build it were forecasted to be $395/sf. Soft costs typically ran at 20% of hard costs. Because the area was transient in nature, a "mid-market" hotel level was advised (e.g., Hilton Garden Inn, Marriott Courtyard, etc.). The average daily rate ("ADR") was expected to be $150 / night (inclusive of ancillary revenue) and the occupancy was forecasted to stabilize at 78%. Operating margins usually ran at 33% of the full nightly rack rate. For the product, the team forecasted an 8% cap rate.

Retail

For retail, the team's architect felt that they could plan for up to 60,000 of rentable sf on the ground floor and that the market would support rents of $45 /sf / year (Triple Net). While the attractively high rents encouraged some members of the team to seek to build more retail by "going vertical", Arnaud wanted to avoid "the flaw of the law of extrapolation" as second story retail was too unconventional and risky. Also, Arnaud was very aware of the aesthetic concerns of the project "we wanted to avoid the appearance of big box retail and maintain the integration and appearance of a village and community". Construction hard costs were expected to be $200 per square foot and soft costs were forecasted at 20% of hard costs. Occupancy was expected to reach 95% at stabilization. Urban Retail was currently trading at cap rates close to 6.00%.

how much the Construction cost , net operating income and return on construction?