Urban Town Houses designed for affordable multi-generational family living.
The Urban Pacific Group (Urban Pacific) has broken the code to enable the development of profitable new construction workforce housing. This new development model, called Urban Town House (UTH), focuses on building new construction multi-generational workforce housing in blue-collar urban infill communities - where in the past the model has generated a 22.5% internal rate of return over an 18-month to 24-month investment period. These “recession resilient” units are differentiated from the marketplace by building a five-bedroom four-bathroom townhouse rental unit.
“We started looking for a new workforce-housing model, and we identified a marketplace for rental townhomes with multiple bedrooms to serve multi-generational working families,” says Scott Choppin, founder of Urban Pacific.
“We found that if we build five-bedroom units, we could house a larger family and given the way that the rent structures work, we could be around $3,000 per month for a five-bedroom unit. When we finished the underwriting we found that this model would produce market-superior yields to equity. Specifically, we have a 25%-plus internal rate of return over an 18- to 24-month period.”
Currently Urban Pacific is seeking $134,000 in equity for a new UTH project to be built at 1491 Atlantic Avenue, Long Beach (the “Project”).
Urban Pacific has completed several projects in the UTH business plan including the following projects that made up the “demonstration phase”, an early phase of development that allowed Urban Pacific to move into this marketplace in a highly disciplined way, while also allowing the company to build a set of standard practices for effective development delivery of future projects. The projects in this phase are:
325 Daisy Avenue - Long Beach, CA
1719 Cedar Avenue - Long Beach, CA
538 Golden Avenue, Long Beach, CA
3801 Franklin Avenue, Fullerton, CA
All of the projects listed above have been completed, and sold or held for long term ownership by Urban Pacific. The average Internal Rate of Return (IRR) to investors for the projects sold was 22.66%. The Fullerton project will be held for over ten years and is expected to return a 20% or above IRR.
Urban Pacific employs a fundamental investment philosophy that is focused on apartments that have the following recession resilient competitive characteristics:
- workforce rental housing for moderate income multi-earner families
- located in undersupplied housing markets - urban infill areas, close to job centers/transportation
- deeply stable renter profile, with strong local social networks - schools, jobs, extended family
- oriented to large multi-generational urban families that seek “economic sharing” housing types
- providing five-bedroom/four-bathroom units with a two-car private access garage
- attached three-story townhouse units that live like single family homes, with multiple bedrooms, and private garages
- building in low/lower-middle income neighborhoods close to renter profile locations with low land cost
- serving families that cannot qualify for a mortgage or are “renters by choice”
As of 2018, Urban Pacific holds all developed assets on a ten+ year basis.
1491 Atlantic Partners, LLC (the “Company”) has been formed to complete the UTH project planned for 1491 Atlantic Avenue (the “Project”) at an anticipated total development cost of $1,749,984. The Project is a new construction building, which will house a total of five residential rental units, including three five-bedroom units each with four bathrooms, one two-bedroom with two bathrooms and one studio accessory dwelling unit.
The planned unit count, type and monthly rent is described in the table below:
|No. of Units||Unit type||Sqare feet||Monthly rent||Rent per s.f.|
|2||5-bed + 4-bath||1,748||$3,500||$2.00|
|1||5-bed + 4-bath||1,692||$3,500||$2.07|
|1||2-bed + 2-bath||1,109||$1,816||$1.64|
Annual (effective) gross income is expected to be around $162,152 with operating expenses of $51,794 resulting in anticipated annual Net Operating Income of around $109,108. Download this pro-forma and lease up summary for further details on operating performance.
The Company has employed the following team to complete all aspects of the project:
The project timeline for the project is planned to be as follows:
June 2020 - Construction drawings complete.
December 2020 - Plan check complete/ready to issue permits.
December 2020 - Close construction loan.
December 2020 - Construction start.
August 2021 - Construction complete.
December 2021 - Lease up complete and operations stabilized
Urban Pacific deploys a strict process for the selection of projects which includes:
- Sourcing through a proprietary network of industry contacts with a team experienced in acquisitions;
- Underwriting with a “bottoms up” approach focused on real estate fundamentals, targeting opportunities that have an identifiable exit strategy and for which the team has in-house expertise;
- Fundamental analysis by assessing the asset, the debt, the equity, and property level cash flow analysis;
- Investment discipline through the use of informational, operational, and relationship competitive advantages;
- Risk Management through the use of a committee approval process, ongoing monitoring of assets and the market, legal review and ensuring the holding and exit strategies are appropriate.
- Ongoing monitoring through weekly, monthly and quarterly portfolio reviews and hands on management to safeguard returns.
Underwriting focuses further on:
- High demand urban infill locations that have appropriate demand characteristics for urban family housing;
- Already zoned land sites to avoid long entitlement timelines.
- Simple construction design to avoid the complications of a typical urban infill podium project.
- Nimble project size of between 30 - 75 units in order to reduce build and lease up timelines.
- Long-term hold strategy of ten+ years, to allow for patient investment in this deeply undersupplied housing market.
Scott K. Choppin is the Founder of Urban Pacific where he oversees all operations including business development, capital acquisition, and strategic planning. Scott is a veteran of the real estate development business, and a specialist in the development of high-quality urban housing projects throughout the Western United States.
With over 35 years in the development business, Scott is a leader in the field, and has been a speaker at the International Builders Show, the Pacific Coast Builders Conference, SoCal BIA’s BIS Show. Scott is also a published author in the real estate development field, and a regular contributor to major media outlets throughout the nation having been published or quoted in Forbes Magazine, Los Angeles Times, Long Beach PressTelegram, GlobeStreet, Builder Magazine, Affordable Housing Finance, Affordable Housing News, and most recently, the cover and feature article in MultiFamily Executive magazine.
Prior to forming Urban Pacific, Scott was Director of Land Acquisition for the Multi-Family Development Division of Irvine-based Sares-Regis Group. In that position, he was responsible for all land acquisition activities for the development of luxury, market rate and senior rental communities throughout California, Colorado, and Arizona.
Before joining Sares-Regis, Scott was with Kaufman and Broad Multi-Housing Group. As Senior Project Manager, he was responsible for all activities related to multifamily development, including the acquisition, entitlement, syndication and development of over 1,900 affordable multifamily units throughout the Western United States.
Scott holds a degree in Business Administration with a specialization in Finance from California Polytechnic State University (Cal Poly), San Luis Obispo.
The GAO indicates: "Since the 2007–2009 financial crisis, growth in the share of renter households has reversed a decades-long trend toward homeownership. This change has underscored concerns about the availability, affordability, and condition of rental housing, especially for low- income households. In 2017, almost seven million more households rented their homes than in 2001, which brought the share of households that rent from an estimated 34 percent to 36 percent. Renting became more common after the 2007–2009 financial crisis as foreclosures and changes in household characteristics reduced the proportion of homeowners. Renting was more prevalent across most age and race/ethnicity groups in 2017 than in 2001, with notable increases among higher-income households."
Only specific housing types and markets have withstood the current turmoil in the 2020 real estate development market. The Covid19 pandemic in particular has accelerated the need for multi-generational and co-living arrangements, where renters can take advantage of “economic sharing” in their living arrangements.
The UTH model addresses this need and attracts households with an average of two to four wage earners per household. This “recombination” of renters is the opposite of new household formation, one standard of measure of rental housing demand in normal housing markets. Recombination is typically found in very high cost housing markets such as California, or in times of economic distress, such as the 2020 recession.
Housing eats up a huge percentage of Californians income. On average they pay more than 36% of their income towards housing. This percentage is the second highest in the nation. High housing cost burden is a driver of demand for housing that provides cost structures that relieve this burden. UTH provides housing to moderate income families at or below 30% of combined family income.
“According to the California Legislative Analyst’s Office (LAO), an average California home costs 2.5 times the national average. Monthly rent in the state averages about 50% higher than the rest of the country. Yet as recently as the 1970s, including during the period of the state’s most dramatic growth, housing in California was only slightly more expensive than in the rest of the nation.”
In addition, during times of economic distress, particularly in blue-collar service industry households, families often expand with boomerang adult children, in-laws, and grandparents joining together to be able to afford appropriate housing.
Generally, the supply of available five-bedroom, four-bathroom units in Long Beach is limited. In a July 16, 2020 search on Zillow.com, no five-bedroom unit rents were found for less than $4,000 per month. The small sample average rent of $4,166 per month and per square foot rent of $2.21. By contrast, the 1491 Atlantic project delivers five-bedrooms at $3,500 per month and $2 per square foot rent. Additionally, these units appear to be superior value with new construction, central heating and cooling, two-car garages and four-bathrooms each.
|Address||Beds||Baths||Rent price||Date||Size||Per s.f.|
|6131 E Los Santos Dr, Long Beach, CA 90815||5||2||$4,000||July 16, 2020||1,711||2.33|
|6110 Long Beach Blvd APT 1, Long Beach, CA 90805||6||3||$4,000||July 16, 2020||1,800||2.22|
|1991 Olive Ave #1, Long Beach, CA 90806||6||2||$4,500||July 16, 2020||2,150||2.09|
With a total population of 471,000, Long Beach is located just 25 miles south of the city of Los Angeles on the coast. Its central location between Los Angeles and Orange County and its proximity to a diverse labor pool have made the city a logical choice for many domestic and international businesses. The city is anchored by two world-class ports and a modernized airport and offers numerous amenities and a well-developed infrastructure including quality office and commercial space, public transit options, and freeway accessibility. Long Beach has multiple options for public transportation, including the Metro Blue Line which connects the city to Downtown Los Angeles.
The ports of Long Beach and Los Angeles make up the San Pedro Bay Port Complex, the busiest cargo shipping complex in the country. Together, the ports create over 177,000 jobs throughout Long Beach and Los Angeles, with Longshoremen often earn upwards of $100,000-$300,000+ a year. In addition to the local jobs created, the ports create nearly one million jobs within the Southern California region, and 1.7 million jobs throughout the United States. Major employers include: Long Beach Unified School District, Boeing Company, CSU Long Beach, Long Beach Memorial Medical Center, Bragg Companies and Epson America Inc.
The Long Beach submarket is among the strongest performing areas in metro Los Angeles County, with an average occupancy as of third quarter 2017 of 97 percent and average effective rent increase of 7.3 percent year-over-year since third quarter 2016. A vast majority of households are priced out of single-family home ownership in Long Beach as the average monthly mortgage payment on a median priced single-family home exceeds average monthly rents in the area by $1,590. The average household income in Long Beach is projected to grow 13.7 percent to $92,060 and median household income is projected to increase 15.4 percent by 2022 to $63,409. You can download a detailed Long Beach/Ports Submarket report here.
The Company is engaged in two simultaneous offerings of its securities to raise money for a real estate project in Long Beach, California. The Company plans to build and operate 5 rental units at 1491 Atlantic Avenue:
- 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 are trying to raise a maximum of $134,000 (the “Maximum Goal”) but we will move forward with the Project and use investor funds if we are able to raise at least $100,000 (the “Minimum Goal”). If we have not raised at least the Minimum Goal by October 31, 2020 at 11:59 pm EST (the “Target Date”), we will terminate the Offering and return 100% of their money to anyone who has subscribed.
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. 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.
The minimum you can invest in the Reg CF Offering is $1,000 and the minimum you can invest in the Reg D Offering is $5,000. Investments may be made in $100 increments above the minimum (e.g., $1,100 or $1,200, but not $1,136). An investor may cancel his or her commitment up until 11:59 pm on October 29, 2020 EST (i.e., two days before the Target Date). If we have raised at least the Target Amount, we might decide to accept the funds and admit investors to the Company before the Target Date; in that case we will notify you and give you the right to cancel.
After we accept the funds and admit investors to the Company, whether on the Target Date or before, we will continue the Offering until we have raised the maximum amount.
The SEC is considering other changes to Reg CF, in addition to raising the maximum offering amount. Where applicable, we will reference possible changes in the applicable sections of the Form C.
- Experienced real estate developer. Scott Choppin is a highly experienced developer, with a strong understanding of issues that may arise in the cycle of development and the ability to form a comprehensive risk mitigation plan.
- Undersupplied rental market. There is little competition in the market. Urban Pacific may be the only company building new units to rent to multi-generational families that include five bedrooms, and a ground floor bedroom/bathroom combination and that live like a single-family home.
- Declining land and construction pricing. Land values in the Long Beach areas have declined between 8-15% and Urban Pacific anticipates that subcontractor pricing will be reduced by 10-30% as well.
- Close to job markets and transportation. Urban Pacific avoids risk by locating in neighborhoods that are close to job centers and public transportation.
- Simple construction design. Urban Pacific eliminates complexity in design to avoid the risk of unexpected construction costs. The UTH model employs a construction process similar to production homebuilding companies, building a simple 3-story slab-on-grade building and utilizing long-term trusted subcontractors.
- Simplified zoning. Urban Pacific avoids entitlement risk by purchasing land sites that are “use by right”. This means there is no time lost in applying for zoning permits, and this can mean a significant time savings.
- Efficient build and lease up schedules. Construction is typically completed in under 6-9 months, reducing exposure time to market. Total investment periods are generally between 16-24 months.
The total anticipated development cost of the Project, approximately $1,829,061 million, is expected to be financed with a construction loan of approximately $1.35 million, equity of $434,774 and construction loan holdbacks of $52,286. Once construction is completed, permanent bank financing is expected to increase to $1,478,614 with equity of $360,446.
It is anticipated that each Investor will receive an annual preferred return of 8% on their investment, which will accumulate but not be compounded. In addition, Investors will receive a pro-rata share of 50% of any profit on the project. The Company plans to sell the property in ten-years’ time. Please see About Investor Return for further detail.
Sources and uses for the project are expected to be as follows:
|Acquisition & pre-development||% of project||Amount|
|Other soft costs||$25,000|
|Fees and permits||$125,00|
|Developer overhead and fee||10% of project cost||$183,906|
|Construction period interest||$44,801|
|Construction contingency||5% of project cost||$41,750|
|Lease up period interest & carry||$11,579|
|Permanent financing costs||$27,286|
|Capital advisory fee||$13,043|
|Construction loan||74% of project cost||$1,352,000|
|Sponsor equity||17% of project cost||$300,774|
|Small Change investor equity||6% of project cost||$134,000|
|TOTAL CONSTRUCTION SOURCES||$1,839,062|
|Permanent financing||84% of project cost||$1,478,614|
|Equity (Sponsor + Small Change investors)||$360,446|
|TOTAL PERMANENT SOURCES||$1,839,062|
See also Exhibit A: Sources & Uses for further detail on sources and uses. Annual (effective) gross income in year one is expected to be around $162,152 with operating expenses of $51,794 resulting in anticipated annual Net Operating Income of around $109,108. Exhibit B: Pro-formas & Lease Up provides further detail on anticipated operating performance.
Under the LLC Agreement, all distributions will be made in the following order of priority first out of operating cash flow and second out of any net capital proceeds, after bank loans have been repaid.
Distributions of Operating Cash Flow. The Company shall distribute its operating cash flow quarterly, 50% to the Investor Members and 50% to the Sponsor.
Distributions of Net Capital Proceeds. Any net capital proceeds resulting from a sale or refinancing shall be distributed in the following order of priority:
- First, to the Investor Members until they have received their entire preferred return for the current year and all prior years, taking into account all distributions they have received through operating cash flow;
- Second, to the Investor Members until the unreturned investment of each Investor Member has been reduced to zero; and
- Third, 50% to the Investor Members and 50% to Sponsor as a promoted interest.
The table below illustrates our estimate of how much an Investor would receive for a $2,500 investment made under two scenarios, either a 4.45% market cap rate or a 5% market cap rate, if repaid in 10 years.
|Anticipated net profit:||Cap rate - 4.45%||Cap rate - 5%|
|Net operating income in Year 10||$138,862||$138,862|
|Closing costs @ 5%||$151,852||$138,862|
|Potential return to Small Change investors:|
|Profit share for $125,000||0.3082||0.3082|
|Pro-rata share of profit||$263,802||$214,895|
|Profit + preferred return||$351,419||$302,512|
|Potential return for a $2,500 investor||$6,556||$5,644|
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 Exhibit C: Risks of Investing.
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 Companies and the terms of this 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 this offering, nor does it pass upon the accuracy or completeness of any offering document or literature related to this offering. 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. You can download a more expansive list of potential risks here.
With unemployment reaching levels not seen since the Great Depression, by some estimates already 20% and rising, some landlords are already experiencing a number of negative effects from the COVID-19 pandemic, including decreased phone calls from potential new tenants, an increase in rent delinquency and more time and resources spent on collections and marketing.
While these trends may continue and may impact our project, the net effect of the pandemic on our Urban Townhouse units has been the reverse to date. We are accelerating our product supply as families move out of one- and two-bedroom units into our multi-generational units. Although we are working from incomplete information, we expect these trends to continue and hold stable, depending on the trajectory of the virus and the ability to re-open the economy.