Carey 5 Points

April 7, 2011

 

Type of Investment:              Proposed Venture between Charter Equities and Financial Investor for the acquisition 33.3 acres of agricultural land, with potential of commercial zoning, located within the city of Carey, Blaine County, Idaho 39 miles south of Sun Valley Gondola lift.

 

Incentive to Purchase:          We are acquiring the property for $115,000.  The value is supported by the property’s water rights, its ability to produce crops to sustain the debt service and taxes and the City’s willingness to grant higher zoning, which at some point provides a substantially higher value as shown below.

 

The property has produced barley crops  on contract for the Coors Company.  In the area alternative crops are  hay/alfalfa, or potatoes.  We are considering growing barley, as the adjoining land owner has contracts with Coors and is open to growing this crop for us on contract..  We have had discussions with two other farmers who are willing to either farm this for us, or participate with us in a share-crop manner.

 

The over-all business plan anticipates, having the land entitlement process completed within three (3) to five (5) years.  At that time the land will either be sold to a developer, or a build-to-suit program will be initiated on the commercial portion.   

 

 

Property Description:       The 33.3 acres are all within the Carey City Limits, and adjoins the City owned airport.  The City has long looked at this area as a Commercial Industrial Zone, and 6.6 acres which abut the airstrip is currently zoned AV. We envision doing a rezone to establish more AV commercial use on 23 acres of the southern half of the property, and the balance would be zoned to a higher 10 residential units per acre zoning which would allow for duplex, triplex housing and/or mobile/manufactured home development.  Both zoning changes are a much higher use than that of agricultural which is the current zoning.

 

In the process of development of the property we can lease the water rights and still have enough remaining rights to service the proposed developments.  There are currently rights for 100 acre feet of water attached to the property.  The value of these rights is estimated to be worth one hundred thousand dollars ($100,000.00) as stated by the water master in the City at a value of $1000 per acre foot. In Carey, water is delivered free. There are two 6 inch pipes stubbed onto the property already. Should we opt to have someone other than the neighbor farm the property we will need to install the supply line for a wheel line irrigation system, the cost of which is estimated at $5,000.00

 

 

                                                The questions of absorption of the commercial uses and higher density have yet to be fully explored.  Given that zoned industrial land in the Wood River Valley, Bellevue, Hailey, Ketchum averages $25.00 per square foot,   our Performa uses $2.50 per square foot, which projects a rough value of $3,500,000 million.  In an analysis of 25% lot coverage, this would equate to $12.00 in a Floor-Area-Ratio of cost of land as it equates to the total cost of the building.  The cost of a building in Carey would be about the same as in these other cities, (Hailey and Bellevue).  However, the overall cost would be less due to the cost of the land. Rental rates can be economic for this type of development in that rental rates work at 65% occupancy of the existing inventories.

 

                                                Affordable housing continues to be a focus in Blaine County.  There needs to be more product built which addresses the issue, particularly for the Hispanic population which has come to focus when considering the need for an affordable labor force in agriculture, construction trades and restaurant/hospitality workers.  One solution is manufactured housing on rental/lease within a planned park.  Should we consider this type of development on the property, it would include amenities such as a community building, swimming pool and other recreational facilities.  A value per unit on raw zoned land for “Manufactured Home Park” is about $10,000.  Limited services of sewer, water, power, cable TV/Internet and telephone, along with paving landscaping is less than $40,000 per unit including land. It would be economically feasible to lease each site for $250/$300 per month where the tenant provides the mobile home and pays utilities:  $3,000 to $3,600 or a ROI between 7.5% and 9% currently.

 

                                                The project can be phased to allow for absorption at 25 units per phase, and include transient RV parking for the seasonal visits in both the winter for Sun Valley, and summer for the vast variety of recreational opportunities within the area (Silver Creek/Pioneer Mountains, Rodeo, Air Sports).

 

Land Loan

Financing:                               We have a commitment from Idaho Independent Bank for a five year loan on the balance, on the following terms:  75% of our cost basis: ($86,250) annual payment of $6,747.00, based on a 6% rate, 25 year amortization, and due in 7 years. 

 

Proposed Structure:              Form a single asset remote entity as a Limited Liability Company.  Managing member Rick Ryerson, (Charter-Five Points LLC) with equal ownership of Investor(s).
Charter Equities, Inc., will provide the day to day management of the property for 7.5% of the income, and will receive construction management fees of 10% of cost in overseeing the construction entitlement process .

 

Appraisal/Valuation:  The current price is $115,000. This price is 33% of what the Sellers paid for the land in 2007. A barley crop would be expected to yield gross revenue $50,000 per year, given a historical yields and current market price of barley, averages 130+/- bushels per acre at $11.00 per bushel. We are negotiating with local farmers to optimize our profit sharing, while limiting our risk of production and involvement. However, it is estimated that the cost of production would be 60% of the total income (Share Crop with local farmer). The economic value based on average agricultural yields, given a 10% capitalization rate, is between $126,500 and $200,000. This figure shows that the purchase price is below the current market. If the value of the 6.6 acres which are currently zoned as aviation light industrial is included in the current value the market value is clearly more that the purchase price. At $2.50 per square foot that section could produce up to $718,740 in additional value.  The future value of the property, based on changing the zoning, of the low density area to multi-family/mobile home  density combined with the AV industrial section is $3.5 mil.

 

Mitigating Down

Side Risk:                            1) Yearly crop profits in excess of debt service and taxes. 

2) Preliminary Discussions with the City on the proposed new zoning were very well received. 

3)  Owner’s ability to meet debt service should we not get the projected yields not be realized.

 

Economic Analysis:          Value  as  Agricultural land: $130,000 to $190,000

                                                Value of Water Rights:           $100,000

                                                Value of Zoned Raw Land:   $3,500,000

                                                Increase in Value by Zoning:    2,692%

                                               

            Projected Net Operating Income from Share Crop

From Agricultural Use:     $12,500+/- annually

           

            Capitalized Potential Income after Cost     10%

           

           

                                                Additional Costs:

                                                Acquisition                             $    115,000

                                                Down Payment                              28,250

                                                Land Loan                                       86,750

                                                Closing costs                                    1,500

                                                Improvements (excavation)             3,000

                                                Irrigation Wheel Line Connect        5,000           

 

                                                                                                                       

                                                FUNDED BY: Equity                       $38,000

                                                                          Loan                          $86,750

                                                                         

Cost and Expenses:               In addition to the note payments there are costs of taxes and insurance.

 

Background:                          We view this property as an excellent opportunistic buy.  The current ownership is being forced to liquidate assets which are pledged to the bank and were cross collateralized to other assets.  The bank (Idaho Independent Bank, IIB) has approved this transaction, allowing for the seller contract on the terms above.

 

The property was purchased by Five Points LLC in 2007 for $360,000., Because of bank involvement and current economic conditions we were able to obtain a favorable price and terms.   The Sellers were the developers on the adjacent sixty-six lot subdivision “Waterford Park”. They have had to provide a deed-in-lieu-of-foreclosure back to IIB.

 

Summary Discussion:            The managing partner a seasoned professional who has built and managed over a million square feet of similar properties.

 

            Currently, the property can be bought at a low basis and provides a good current return with limited risk.

Debt service out of pocket is $6,747 per year or about $560.00 a month.    There are a number local tenants in our market who have leases expiring and who are looking to better their situation.  INL (Idaho National Labs) is forty (80) miles to the west of Carey, and offers opportunities to provide both housing and support for the many on-going construction projects including the new uranium enrichment facility adjacent the INL.  Given the size of the market place, if we implement this program we should be able to attract both residential and commercial tenants.

 

                                                I am optimistic in recommending this investment for the following reasons:

1) the significant experience the ownership and management team have in like properties.

2) The price is at 33% of cost just 5 years ago

3) Current economic return on investment, with 10%+/- cash on cash, depending upon agricultural yield.

4) Upside potential with rezoning of the property to higher residential density and commercial uses provides a multiple exponential return in value increase. 

5) The possibility to return the initial investment to the investors as soon as capital markets return with a refinance  

6) The investment pricing affords a good yield to the investors for the related risk.

 

 

 

Respectfully submitted:

 

Charter Equities, Inc.

 

 

__________________________                   

Rick Ryerson, President