A Closer Look At 220 Riverside

[downtownjag]

It will be great Lake, and they will not have any problem leasing them.

I'll be standing in line

[Tacachale]

Sigh. Trolls gotta troll, I guess. The rest of us can rest assured that the owners will find a way to make this work, or they wouldn't even bother. If that means lowering the rent for the short term to fill the units, or offering some other deal, I'm sure they'd do that rather than go bankrupt. I also imagine they're not looking at this as a short-term investment that will ripen immediately. 5 years, 10 years, 20 years down the road the area will look totally different, and these owners will have gotten in on the ground floor.

I can rest assured nobody developing this project is looking to hold past 5 years (this is not a term balance sheet loan or a Fannie arrangement...it's a construction loan, LoL, and even with a Fannie arrangement with a 4 year lockout they would have a much earlier exit).  I can also agree and add to your point that most new apartments in sunbelt markets, especially in testy submarkets, open with major concessions.  They probably underwrote 2 years of concessions with major burnoff after that point.

If they're holding past 3-4 years (which given the market is a high probability), they'll need to place a term loan on this (which unless they want to hold for an additional 5 years past stabilization, 2-3 years post delivery, 18 months post groundbreaking, they'll go the traditional route).  The new traditional loan will be sized based on debt yield, which is the new gold standard of underwriting and is based on NOI.  If they don't stabilize to 95+% occupancy AND burn off all concessions in 2-3 years at the time they will be trying to secure said loan (a loan with flexible prepayment options I'm sure, which means no agency or HUD), then they'll be stuck with a loss (or a major resize, which will require a huge paydown of construction loan out of pocket and a slashing of their IRR if that's the return they are going for - probably is considering the risk, market, product and new construction).

So given the momentous task the developers have of trying something new in Jax, the riskiest of all markets, leasing this baby up for sticker shock prices in a shoddy area within 2 years AND burning off concessions either for a sale or to put a perm on the asset, and given historical performance of Jax apartments (especially boundary pushers like the infill developed in Riverside and downtown), then Yeah...someone IS losing sleep over this deal!!!!

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Being the only new construction in the area, it's likely that its selling point will be free cable/wi-fi - maybe even a new flatscreen to come with apartment, etc etc.  Vintage deals in cheaper sunbelt metros are also finding that they must offer more services to stay relevant and compete with newer product and keep their rent growth or maybe even just to keep rents stable.

Don't discount me as a troll because I tend to offer devil's advocate POV.  I work on a multifamily deal and on plenty of other large deals for a big time investment shop, and I travel frequently to various markets and live in a larger market.  I look at places like Brooklyn from a "fresh" outsider's pair of eyes.  Seasoned "been there done that" transients in Jax will not find the area urban, hip, exciting or walkable even when built out.  I can go on about the many reasons that is so, but nobody will believe me.  There are more promising developable infill areas in Jax that are not getting any attention right now.

To your average Jax native who has not yet ventured out of the Jax bubble and has not experienced real city life, Brooklyn still won't be appealing as an exciting new urban experience.  For that everyone knows you go to Riverside or downtown.  For all others who could care less (most in Jax and in actuality most young people despite the perpetuated myth that all young people demand to be in the action), the ability to leave your parents' nest and either BUY a house or rent a luxury apartment on the SS is most appealing.

Obviously the lender and the parties involved have confidence in the project, but let's face reality: this project has been 6-7 years in the making and only now in this time of near-bubble multifamily lending environment can the lender find it in themselves to fit this baby within their underwriting standards.  If this were a 2008 built deal sold through CMBS, it would still probably fall in the riskier category placing it in a lower tranche, mmhmm.

Simms, I wasn't calling you a troll, I was referring to that troll jaxeeyore who was trolling before. Much of what you say makes sense; my point is that demand for apartments is clearly there, and I'm confident the owners will do what it takes to make the project work, including by tweaking the rates if necessary. And while the current state of the neighborhood may make the project seem dodgier currently, I expect the real payoff will be a few years down the road when the demand is finally met by this and similar projects.

[thelakelander]

I expect the payoff to come as soon as 2014.  It appears that 220 Riverside, Unity Plaza, and the Pope & Land development will be completed around the same time. Combined, they change transform the area between Park and Riverside Avenue, between Forest Street and downtown, by themselves.  What I'm hoping is that their construction will lead to additional projects in the area that utilize a mix of infill and adaptive reuse of existing area buildings.

[simms3]

Hopefully.  There is plenty along Park to make for a cool area with trendy restaurants, startup office space, and niche retail.  Unfortunately not a lot of workable land area in the 95/10/Acosta bound area, but I hope going forward net of the current developments, retention ponds, and YMCA redesign that future land use is maximized.

[CityLife]

How many employees of Fidelity, BCBS, etc work right there on Riverside? I imagine there will be some major demand from them. They would basically save about $100-$200 in commuting costs monthly,  have less wear and tear/mileage on the cars, and about 5 hours less of commuting per week vs. the Southside which Simms claims is so attractive. Subtract the financial and intangible benefits from walking to work vs. driving and 220 is far more attractive than living on the SS. Especially when you factor in proximity to DT and Riverside, which by and large many (if not most) prefer over the SS.

Another point related to this that I forgot to make, is that employers love it when their employees live in close proximity to the office. Generally, employees are more likely to work overtime or come in on the weekends for an hour or two if they live right around the corner, vs. a long commute. They are less likely to be late to work...and I would guess also happier. I know I'm jealous that my boss gets to go home on his lunch break every day, while I'm stuck going out to eat.

What does this mean for 220? It means that they can make some deals with the large employers on Riverside to encourage their employees to live there, which may even include financial incentives or bulk discounts. It also means that the area may become more attractive for new businesses/offices. I've mentioned before on here that office locations are primarily driven by executives and where they live/want to live, but having attractive housing for employees in proximity is a factor that does get taken into account.

[FayeRealtor]

Please allow me to put in my two cents as a Realtor.  Location is the primary driver of price/rent and this area is well known for it's high crime rate and seedy activities. (Review the JSO Crime Statistics for verification.) Tenants who can afford $1,200.00 a month will not accept Brooklyn.  I doubt if the property managers will be able to get more than 15% occupancy in the building in the first several years of operation. 

[Wacca Pilatka]

We sure have a concentration of first-time posters trashing this project.

[downtownjag]

Please allow me to put in my two cents as a Realtor.  Location is the primary driver of price/rent and this area is well known for it's high crime rate and seedy activities. (Review the JSO Crime Statistics for verification.) Tenants who can afford $1,200.00 a month will not accept Brooklyn.  I doubt if the property managers will be able to get more than 15% occupancy in the building in the first several years of operation. 

Seriously?  I think you're totally wrong here, which I do not say disrespectfully. 

[downtownjag]

We sure have a concentration of first-time posters trashing this project.

Very true.  I wonder if MAA/Hallmark/Bristol consulted with these experts before deciding on the project. 

[fsujax]

15% really? wow thats what they were saying when 11E and the Carling were being converted. Now you can't even get in without being on a waiting list. Some southside , virgin land developers are getting scared!

[copperfiend]

Please allow me to put in my two cents as a Realtor.  Location is the primary driver of price/rent and this area is well known for it's high crime rate and seedy activities. (Review the JSO Crime Statistics for verification.) Tenants who can afford $1,200.00 a month will not accept Brooklyn.  I doubt if the property managers will be able to get more than 15% occupancy in the building in the first several years of operation. 

Another interesting first post.

[Captain Zissou]

It is my opinion that this area is perfect for mid/high density infill development.  The physical barriers that cut the neighborhood off from DT and Riverside help to increase the need for density and establish and increase the value of the projects that go in there.  Brooklyn can't get any bigger, so whatever the first 5 or 6 projects are to build on the land will have an unconquerable barrier to entry that will lock in the value of their investment for the near future.  The area north of park and east of Forest is largely vacant land that is zoned ROS.  In order to put anything on the land, properties will have to be combined into larger parcels for dense development.   

As the 3 or 4 large scale proposed projects are constructed, the percentage of the neighborhood that will become high end is 60%+.  There will be significant opportunities for occupants/owners of the northern portion of the neighborhood to sell their properties at a profit, as more investors will try to capitalize on the upward momentum of the neighborhood.  That will remove the few remaining seedy areas from the equation.  At that point, Annie Lytle will be the only run down area of the neighborhood.  I hope that at that point the city will be motivated to turn that property around. 

I think the development will have 40% under contract prior to the completion of construction.

[thelakelander]

We sure have a concentration of first-time posters trashing this project.

Very true.  I wonder if MAA/Hallmark/Bristol consulted with these experts before deciding on the project. 

Can't imagine a company like MAA putting up $40 million for this if they thought it was only going to have 15% occupancy.

Btw, I can afford $1,200 in rent and I'd be willing to pay that on Riverside Avenue moreso than in a random gated apartment community on Southside Boulevard.

[Egodriver71]

I'd have no problem paying $1200ish/month to live at 220 Riverside, IF, JTA would expand the Skyway to 5-points and have a station there at Forest St or Jackson St.

It would mean I could commute to my Southbank job without having to drive, ride a bus or ride a bicycle!!!

Places like Brooklyn can expand GREATLY if JTA would get of their a$$es about BRT.

[simms3]

It means that they can make some deals with the large employers on Riverside to encourage their employees to live there, which may even include financial incentives or bulk discounts. It also means that the area may become more attractive for new businesses/offices. I've mentioned before on here that office locations are primarily driven by executives and where they live/want to live, but having attractive housing for employees in proximity is a factor that does get taken into account.

Right on.  Preferred employer discount programs.  We have one with RTP employers for a multifamily development deal I work on in Raleigh.  There is a good and bad way to go about this as you don't want to attract a bunch of people here for just 1-2 years (people who *know* they'll be moving along soon).  These are discount hunters and at the first sign of a rate increase they're gone.  Of course these are the same people I earlier mentioned might look into living here, haha.

It is my opinion that this area is perfect for mid/high density infill development.  The physical barriers that cut the neighborhood off from DT and Riverside help to increase the need for density and establish and increase the value of the projects that go in there.  Brooklyn can't get any bigger, so whatever the first 5 or 6 projects are to build on the land will have an unconquerable barrier to entry that will lock in the value of their investment for the near future.  The area north of park and east of Forest is largely vacant land that is zoned ROS.  In order to put anything on the land, properties will have to be combined into larger parcels for dense development.   

As the 3 or 4 large scale proposed projects are constructed, the percentage of the neighborhood that will become high end is 60%+.  There will be significant opportunities for occupants/owners of the northern portion of the neighborhood to sell their properties at a profit, as more investors will try to capitalize on the upward momentum of the neighborhood.  That will remove the few remaining seedy areas from the equation.  At that point, Annie Lytle will be the only run down area of the neighborhood.  I hope that at that point the city will be motivated to turn that property around. 

I think the development will have 40% under contract prior to the completion of construction.

I would normally agree, but in this case I am holding a "we shall see" attitude with Brooklyn.  I'm all about "high barriers to entry", but in Brooklyn they aren't high-ish for the best of reasons.  I think the area is a little "too" cut off from other surrounding neighborhoods by large interstate highways on all sides.  That and even with the new developments/proposals, a lot of land is tied up in parking, and the city has further tied up a lot of land with its horrendous planning for the area and the FDOT 95/10 interchange support systems.  40% pre-leased would likely be unprecedented in Jacksonville, and many places, but that would be great.  If that happens I can assure you more intense development will SOON follow!  Currently a new high rise rental community near me is 15% pre-leased with an expected January opening, and it's in a much tighter, much stronger submarket within a much tighter, much stronger market.  Still, 15% pre-leased at rates supposedly 7% higher than underwritten is enough for the developer to duplicate the tower nearby with an early 2014 opening (about to break ground).