An unusual worker/artist owned and run bed and breakfast to be built on New Orlean’s Magazine Street.
This community-driven project amplifies the life of New Orleans’s historic Lower Garden District. 1476 Magazine Street takes a long-vacant lot and transforms it into an 8,000 square foot center of arts, culture and commerce, anchored by live/work spaces for artists and a cooperatively-owned bed and breakfast.
All services at 1476 Magazine Street are provided by the artists/owners themselves. The project consists of a nine-room bed and breakfast, four artist residences, a ground floor community hub for neighborhood and cultural activities, and more than 1,000 square feet of pre-leased ground floor commercial space. (Images are conceptual only. Final building may vary.)
Building off Magazine Street's history as a creative corridor,1476 Magazine is intended to provide affordable accommodation for visitors in a thriving tourism market and much-needed affordable housing for artists in a heated residential housing market which they can no longer afford to call home. Here artists can come back to the Lower Garden District while plugging in to the larger tourist economy. And with its “community living room” for classes, workshops, events, art openings, and leasable ground floor commercial space, 1476 Magazine activates the street culturally and economically in a way few other projects have in New Orleans.
The co-operative model of ownership of this bed and breakfast is also unique. It will both provide affordable housing while encouraging creative communities: Artists who occupy the four live/work residences will, in exchange for free accommodation, work from two to three days each week serving the bed-and-breakfast’s customers. The rest of their time will be spent working with the community and on their own creative pursuits. Revenues from the bed and breakfast will cover the co-op members’ room and board with profit distributions providing cash stipends.
Artists will apply for co-op membership and will be vetted on hospitality skills, their interest in cooperative living and working, shared values, a deep sense of place, and love of community. For the artists/owners this unique model will provide each artist with reclaimed time and energy for making art, working with nonprofit community partners, going back to school, even writing a novel and getting it published. As members move on, new positions will open for artists in search of time and a supportive, creative community.
The project will be developed by 1476 Magazine, LLC (developer) and designed by architect OJT. The project is currently in the design phase and is anticipated to start construction early summer 2018. It has received approvals from the Historic District Landmarks Commission for conceptual design and the Zoning Board for reduced parking requirements. The general contractor will be Edifice Builders. Edifice Builders have developed preliminary pricing using the conceptual design drawings developed to date. This estimate has been used to develop the project budget, which can be found in “About the Finances.”
The anticipated timeline for the project is:
April 2018 - Construction drawings complete
May 2018 - Submit for permitting and finalize pricing
July 2018 - Constrution begins
Juy 2019 - Construction complete and first floor tenant moves in
August 2019 - Hotel fit-out and furnishings installed
September 2019 - Doors open
The Company is engaged in two simultaneous offerings of its securities:
- An offering under Regulation CF (where anyone can invest), which we refer to as the “Reg CF Offering”; and
- An offering under SEC Rule 506(c) (where only “accredited investors” can invest), which we refer to as the “Reg D Offering.”
We plan to use the proceeds of the two offerings, together with a loan from a bank, and developer equity of $150,000, to build a nine-room bed and breakfast with four artist residences, a ground floor community hub for neighborhood and cultural activities, and more than 1,000 square feet of pre-leased ground floor commercial space on a vacant lot at 1476 Magazine Street in New Orleans.
It doesn’t matter how much is raised in the Reg CF Offering and how much is raised in the Reg D Offering. Thus, if we raise $1,000 in the Reg CF Offering and at least $99,000 in the Reg D Offering we will proceed, and vice versa.
In an offering under Regulation CF the issuer is required to state a “Target Amount,” meaning the minimum amount the issuer will raise in the Regulation CF offering to complete the offering. For the reason just described, our Target Amount for the Reg CF Offering is $1,000.
However, we will not complete the Reg CF Offering OR the Reg D offering unless we have raised a total of at least $100,000 by August 31, 2018 EST. If we haven’t, both offerings and all investment commitments will be cancelled, and all committed funds will be returned.
In both offerings, shares are $1 each, and investors must purchase a minimum of 500 shares each for a minimum investment of $500 the minimum investment is $500, and investments above $500 may be made in $500 increments (e.g., $1,000 or $1,500, but not $1,136). Investors can cancel their commitment up until 11:59 pm on August 29, 2018 EST. After that any funds raised will be released to the developer and investors will become shareholders of the company. The developer may decide to change the offering deadline but will provide at least five days’ notice of such a change to all investors. And investors will also be notified and asked to reconfirm their commitment if any other material changes are made to this offering.
With the purchase of shares, each investor becomes a shareholder in the company. Each investor will receive a pro-rata share of 60% of cash flow and profit on the project. This 60% is assigned to the total equity requirement of $550,000. If, for example, an investor were to invest $1,000, they would receive a 1/550th (or approximately 0.18%) pro-rata share of 60% of cash flow or profits available for the project. See About Investor Return for further detail on anticipated returns.
The project’s developer is 1476 Magazine, LLC. The manager of 1476 Magazine, LLC is Magazine Race, LLC which has four members. Of those, Charles Rutledge is the managing member. Chuck has 30+ years of real estate development experience. His expertise covers all aspects of project management, including oversight of design and construction.
Additionally, Chuck has special expertise in complex financing of real estate projects including conventional debt, private equity, Federal and State Historic Tax Credits, Federal New Market Tax Credits, Low Income Housing Tax Credits, and HUD Section 108 and 221(d)(4) loans. Chuck has been a developer or project manager for more than 20 projects totaling $400,000,000+, including seven hotels, 36 affordable housing units/studio space for artists, 11 multifamily developments (1,400+ affordable and market-rate units), and an artists’ residency center. Some examples are the Joan Mitchell Center in New Orleans, LA; the Bywater Art Lofts in New Orleans, LA; the Southern Hotel in Covington, LA; and the Humble Oil Building in Houston, TX. Chuck holds bachelor’s degrees in English and Business Administration from Vanderbilt University and an MBA from Southern Methodist University.
Pierre Stouse is the co-owner for Edifice Builders, LLC and has 33+ years experience in commercial and residential construction, managing a wide variety of projects including hotels, medical facilities, retail and restaurant spaces, and high end custom residences. Some examples are Saint Thomas / Ninth Residences in New Orleans, LA (pictured above); the Joan Mitchell Center in New Orleans, LA; and the International House Hotel in New Orleans, LA. As co-owner of Edifice Builders, LLC general contractors since 2003, Pierre has completed over $25.5 million in new construction and renovation projects. Pierre holds a Bachelor of Science in Civil Engineering from the University of Virginia, and a Master of Engineering from Tulane University.
Clayton Carriere is the other co-owner of Edifice Builders which has over 30 years of experience at all levels of both commercial and residential construction. His involvement in over $25 million worth of building ranges from hotels and retail stores to single and multifamily residential developments. He has experience working with architects and engineers during all phases of the design process, cost estimating, project management, and field supervision during construction. Clayton has a background in Business Administration at Loyola University in New Orleans and Civil Engineering at the University of New Orleans.
Jonathan Tate is the principal of OJT (Office of Jonathan Tate, pictured above), an architecture and urban design practice in New Orleans, which he founded in 2011. The office engages in numerous design-related activities, including applied research, opportunistic planning, strategic development and conventional architectural practice. Notable recently completed projects include 14 units under the Starter Home* development agenda, which has received wide recognition - one at 3106 St. Thomas Street (pictured to the left) built and sold in 2016, and 12 more at St. Thomas and Ninth Streets completed in the fall of 2017 and currently for sale (pictured above right). An additional two projects are in pre-development at 3609 - 3613 S. Saratoga Street in the Milan neighborhood, thanks to funds raised by Small Change equity investors. Another notable project is Wetland Urbanism, a research and publication project that was exhibited at the 14th International Architecture Biennale in Venice. Tate is a graduate of Auburn University, where he was a multi-year participant in the Rural Studio, and Harvard University Graduate School of Design. Tate, and the practice, have been recognized as part of the 2017 Emerging Voices by the Architectural League of New York.
The project is located on Magazine Street in the Lower Garden District, a neighborhood of New Orleans. Originally developed between 1832 and 1900, the Garden District was developed by a wealthy group of newcomers moving in to replace the plantations of that time with opulent houses. The Garden District is considered to have one of the best-preserved collections of historic mansions in the United States. (See example pictured to the right.)
Now the area includes a mix of land uses similar to other areas in Uptown New Orleans, and it has experienced a further period of redevelopment over the last decade. The Garden District has plenty of landmarks, and shopping too. Magazine Street is one of the neighborhood’s primary retails corridors, and runs for six miles, full of antique stores, art galleries, craft shops and boutiques. Originally it was named for a “magazin,” a warehouse that was built in the late 1700s to store products until exported. Magazine Street has a large range of historic architecture ranging from columned Greek Revival style mid-19th century buildings, to colorful Victorian cottages trimmed in quirky gingerbread millwork. This architectural variety enhances the endless shopping and dining venues, making Magazine Street a hot spot for locals and visitors alike. A typcial block is shown below.
The developer commissioned a market study for the project which was completed by The McEnery Company and updated at the end of December 2017. McEnery summarized the overall economic conditions of the neighborhood as follows:
“Overall, the Lower Garden District neighborhood has experienced significant revitalization over the past 10 to 15 years ... New development and redevelopment is still occurring at a rapid pace, and what will perhaps be the single-largest mixed-use development in the city is proposed just a few blocks away. These large- scale projects are in addition to various renovations and re-purposed uses of small scale buildings along Magazine Street. Overall, the short-term and long-term outlook for this area is good.”
“... the subject property neighborhood is arguably one of the most exciting boroughs in the New Orleans Historic Center. “
After analyzing numerous competitors, McEnery’s conclusion was that $185 per night is a competitive average daily rate and that occupancy rates of 62.5% is a reasonable projection for the project. The developer has assumed rates that are close to this per night rate and occupancy rate in their operating budget.
The total amount projected to build 1476 Magazine St. is approximately $2,203,246. It is anticipated that a local bank, or another approved lender, will provide a loan of approximately 75% of the development cost, or approximately $1,652,435, leaving an equity requirement of $550,000.
The total development cost is arrived at by adding together all the projected costs as outlined in the list below. Hard costs are construction costs along with a contingency set aside for unforeseen circumstances. Soft costs include any bank fees and interest, insurance, engineering, architect and developer fees, and other such holding costs.
|Furniture, fixtures and equipment costs||$119,050|
|Total development cost||$2,203,246|
The land has already been purchased and will be transferred to the 1476 Magazine, LLC at closing of the bank loan. In addition, the developer and architect will be owed fees totaling $300,000 that will remain as equity in the project until the required $550,000 in equity has been raised.
The Developer plans to sell or refinance the project once the property is stabilized which is anticipated to be after five (5) years of operations. The sale price in year five is anticipated to be around $2,935,235, arrived at by dividing the $249,495 Net Operating Income in year five by a 8.5% market capitalization rate.
Under the LLC Agreement, all distributions will be made in the following order of priority:
- First, the Available Cash from operations shall be distributed
- 60% pro-rata to the Contributing Members, including Sponsor in its role as Investor Member;
- 40% to the Sponsor as a promoted interest.
- Second, upon sale or refinancing of the building, Available Cash, if any, shall be distributed to the Sponsor until any deferred developer, architect and contractor fees have been paid in full.
- Third, upon sale or refinancing of the building, the balance of the Available Cash, if any, shall be distributed until Contributing Members, including Sponsor in its role as Investor Member, have received a full return of their Unreturned Investment.
- Fourth, the balance of the Available Cash, if any, shall be distributed
- 60% pro-rata to the Contributing Members, including Sponsor in its role as Investor Member;
- 40% to Sponsor as a promoted interest.
The table below illustrates our estimate of how much the full investment of $550,000, with $400,000 from Small Change Investors, is anticipated to receive in return if the property were sold after five years of operations at the projected capitalization rate of 8.5%. Anticipated net operating income is projected in the attached operating pro-forma.
|Anticipated return on $550,000 investment|
|Net operating income in year 5||$249,495|
|Capitalized value/sales price||$2,935,235|
|Closing costs (5% of sale)||($146,762)|
|Balance on loan||($1,458,960)|
|Return of equity investment||($550,000)|
|Funds available for distribution from sale||$779,514|
|Investment return summary:|
|60% of cash flow over 5 years||$232,489|
|60% of funds available for distribution from sale||$467,708|
|Return on $1000 investment|
|Pro-rata share of cash flow over 5 years||$423|
|Pro-rata share of funds from sale||$850|
|Total amount returned on a $1,000 investment||$2,273|
Caution: This table is merely an illustration based on current assumptions and estimates as of the date of this offering and may change at any time based on market or other conditions and may not come to pass. All investments carry risk of loss and there is no assurance that an investment will provide a positive return. Many things could go wrong with this offering, including those listed in the Risk Factors section below. For example, there is no guarantee that the developer will be able to sell the property for the amounts shown or in the time period shown.
A crowdfunding investment involves risk. You should not invest any funds in this offering unless you can afford to lose your entire investment. In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended or approved by any federal or state securities commission or regulatory authority. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document. The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of any offering document or literature.
These securities are offered under an exemption from registration; however, the U.S. Securities and Exchange Commission has not made an independent determination that these securities are exempt from registration.
There are numerous risks to consider when making an investment such as this one and financial projections are just that - projections. Returns are not guaranteed. Conditions that may affect your investment include unforeseen construction costs, changes in market conditions, and potential disasters that are not covered by insurance. Download this risk disclosure for a more expansive list of potential risks.
Unless otherwise noted, the images on this offering page are used to convey the personality of the neighborhood in which the project is planned. Properties shown in these images are not included in the offering and investors will not receive an interest in any of them.