40 Glen Eyrie 34-Units, Willow Glen (San Jose) $8,000,000 Barry Krupp 18 East Main Street Los Gatos, CA 95030 408.402.3930 408.317.0440 fax
Advisory and Disclaimer This offering memorandum is intended to be a model based on the assumptions outlined herein. It is not intended to be a prediction of the future or a guarantee of any sort by Krupp & Company or the seller. The assumptions used in this offering memorandum can be changed to model any scenario you would like to see. You are encouraged to change these assumptions as many times as you see fit to model any combination of circumstances you can create. Buyer is notified that there are inaccuracies. Some due to calculations and others due to rounding. Buyer is advised to check calculations. Krupp & Company is not a tax advisor. Some tax calculations may be included for convenience and are estimates only. Buyer is advised to seek tax advice from a qualified tax advisor to obtain accurate calculations of tax consequences, and for any other tax advice prior to taking any action, which includes but is not limited to buying, selling, exchanging, refinancing, or changing management strategies. In particular, Buyer is advised to seek tax council for structuring a 1031 exchange. As with all investments, risk exists. Krupp & Company is not a risk management specialist nor are we experts in determining the suitability of an investment for a particular risk level you are trying to achieve. You have been provided this offering memorandum because Krupp & Company believes that you are a professional real estate investor and you are capable of determining risk and the suitability of a particular investment and the aspects of building condition and financial condition of a property on your own. If you feel you are not a professional investor, please notify Krupp & Company immediately. Projections have been made based on San Jose Rent Control Ordinance. No representations are made by Krupp & Company or the seller as to the feasibility of obtaining any projections as it relates to San Jose Rent Control. It is the expectation of Krupp & Company that you understand San Jose Rent Control. You are hereby advised to seek council from a specialist of San Jose Rent Control and make your own determination as to the feasibility of any projections made in this offering memorandum as they relate to San Jose Rent Control. Projections have also been made with respect to the market rents of the subject property. Any such projections have been provided as a convenience. Krupp & Company has performed its own rent survey to estimate possible rent levels that may be achieved both with and without capital improvements to the property. Buyer is advised that any rent survey is highly subjective and will vary for each person performing the same rent survey. Buyer is advised to conduct their own independent rent survey and Buyer is advised to rely solely on their own independent rent survey when calculating any proforma or potential rent. 2
rental market can support without upgrading the units. The market does however support bringing all of the current rents up to street-rent levels which is 1.,495 for the 1 s and 1,695 for the 2 s. This represents a $242 average increase for each of the tenants well below the maximum allowed under rent control. The Upside of the Deal Raise Rent Approximately 16% over the next 12 months San Jose rent control specifically provides for rent increases because of increased debt service. Currently, there is no debt on the subject property so the entire loan payment of any acquisition debt can be considered when calculating rent In the income and expense statement on page 10, you will find increases based on increase debt service provisions of the rent a column for 12 Month Proforma rent and income. The control ordinance. column for 12-Month Proforma Income reflects the rents and income when the existing tenants are brought to current San Jose rent control allows for a rent increase of 80% of the street rent levels by way of the increased debt service increase in debt service. See rent control ordinance for all provision under the San Jose rent control ordinance. provisions. In this offering memorandum, we are assuming a loan to value of 56%. Based on 80% of the increase in debt NOTE: A copy of the San Jose Rent Control Ordinance service, San Jose rent control provides for a $556 per month worksheet has been provided on page 14. Owners have rent increase to each of the tenants. (see page 14 for reported a much lower percentage of tenants contesting the calculations and San Jose Rent Stabilization Worksheet) increase when this form is delivered with any rent increase resulting from increased debt service. A $556 per month increase is more than what the current 3
Repositioned Rents and Improvements Obtaining 1,725 for 1-bedrooms & 1,995 for 2-bedrooms Rent comparables included in this offering memorandum support a repositioned rent of 1,725 for the 1-bedroom units, 1,995 for the 2-bedroom units and 2,100 for the town house unit. This is almost 300 per month more than the current street rent levels. In order to obtain the repositioned rents, a number of upgrades to the unit will be necessary. In the income and expense statement, you will find a column for Repositioned rents. Below are some of the improvements necessary to obtain Repositioned rents. Interior Improvements Kitchen New cabinets Granite countertops New appliances Modern looking linoleum that matches paint and carpet Dishwasher New light fixtures Bathroom Modern looking linoleum that matches paint and carpet Vanity on case by case basis New light fixtures General Exterior Improvements Modern door knobs and hardware Matching light fixtures to door knobs Install window/plug in A/C unit Base moldings and door casings New 3 tone paint scheme Signage Note: In one of the units that was inspected, there was room in the electric panel to add two additional circuits. This should allow for a dishwasher. No representations are made as to the feasibility of performing any of the upgrades mentioned in this offering memorandum by either the seller or broker. Buyer is advised to make their own independent inspection and form their own conclusions. 4
5
Property Description General 40-Glen Eyrie, San Jose is a 34-unit building comprised of twenty eight 1-bedrooms, five 2-bedroom 1-baths and one 2- bedroom 1.5-bath townhouse units on.68ac. The property was constructed in 1962 with wood frame and a stucco/siding combination for the exterior over a perimeter foundation with galvanized plumbing. Roof The roof is flat and was replace approximately 3 years old. The new roof was overlayed in October 2011 by California Roofing Company in San Jose. The roof is a 60 MIL TPO single ply membrane with a 5-year warranty. Both building and carport roofs were completed. Termite Report A termite report has been performed. Contact broker for copy prior to making any offer. Laundry Room The property has a laundry room and the laundry equipment is currently leased on a month-to-month basis from WASH Multifamily Laundry. The laundry income is split 50/50 between owner and WASH. Hot Water Heaters The building is serviced by three hot water heaters. All three hot water heaters were replaced and strapped in December 2013. According to the invoice by CMS Plumbing, a city permit was pulled to install the three hot water heaters. Retrofit Windows The windows have been upgraded with vinyl windows. The upgrade program has been completed on a unit by unit basis over time. Parking Parking is in the rear of the lot. There are 33 covered parking spaces available for the tenants. 6
Location Description Location Very few buildings that come available will have a proximity to a downtown such as 40 Glen Eyrie. In fact, it takes longer to drive downtown Willow Glen and find parking than it takes to walk to the center of town. Minutes to Walk: El Abuelo 2 San Jose Swim and Racquet Club 6 Willow Street Wood Fired Pizza 7 Corner of Willow Street and Lincoln 6 Peets Coffee 8 Bill s Café 8 Aqui (Mexican Restaurant) 8 Top Nosh Café 8 Yuki Sushi 8 The list of restaurants, schools, cafes and shops that are within walking distance to the subject property is substantial. We suggest visiting downtown, Willow Glen to see all that is within walking distance to the subject property. 7
Summary Pricing Details Price 8,000,000 CAP Current 4.25% CAP Market Rents 6.20% Units 34 Price Per Unit 235,294 Price Per Foot 396 Down Payment 45% 3,570,000 New 1st T rust Deed 4,430,000 Interest Rate 3.64% T erms 30 due in 30 Land Details Lot Size.68a Parcel 264-57-110 Building Details Year Built 1962 Stories 2 Structure Wood Frame/Stucco Exterior Foundation Raised perimeter foundtion Roof Flat Roof Roof Age 3 years Parking Plumbing Galvanized Laundry Equipment WASH Multifamily Laundry Systems Lease T ermination mos-mos Coin Collection 50/50 split of laundry income Building Amenities quiet setting fruit trees carports walk to downtown Willow Glen 8
Rent Roll Unit Size Rent Move In Last Rent Increase Sq.Ft. 1 1 1,377 Aug-13 Aug-14 559 2 1 1,395 Apr-14 Jun-14 559 3 1 1,395 Mar-14 Mar-14 559 4 1 1,290 Jun-11 Jul-14 559 5 1 1,195 Mar-04 May-14 559 6 1 1,325 Mar-13 Apr-14 559 7 1 1,393 Aug-13 Aug-14 559 8 1 1,216 Mar-10 Jun-14 559 9 1 1,350 Jul-12 Aug-14 559 10 1 1,216 Mar-10 Jun-14 559 11 1 1,325 Jan-13 Jan-14 559 12 1 1,295 Dec-13 Feb-14 559 14 2 1,650 Sep-05 Apr-14 750 15 1 1,603 Apr-12 May-14 559 16 1 1,377 Jun-13 Jul-14 559 17 1 1,290 May-09 Jun-14 559 18 1 1,196 Aug-09 Sep-13 559 19 1 1,350 Jul-12 Aug-14 559 20 1 1,182 Nov-11 Dec-13 559 21 1 1,377 Jul-13 Aug-14 559 22 1 1,290 Mar-03 Jun-14 559 23 1 1,290 Jul-11 Aug-14 559 24 1 1,164 Dec-10 Jan-14 559 25 1 1,312 Jan-12 Mar-14 559 26 2 1,510 Aug-10 Sep-13 750 27 1 1,603 Feb-10 Jun-14 559 28 1 1,398 May-12 Jun-14 559 29 1 1,398 Jul-13 Aug-14 559 30 1 1,283 Dec-07 Jan-14 559 31 1 1,350 Oct-13 Dec-13 559 32 1 1,325 Dec-12 Jan-14 559 33 1 1,550 Feb-12 Apr-14 559 34 2 T H 1,290 Oct-87 Jun-14 825 35 2 1,795 Sep-13 Dec-13 750 T OT AL 46,355 9
Income & Expense Rent Schedule Current Debt Service Increase Market T ype #Units Sq. Ft. $/Sq.Ft. Avg. $/Sq.Ft. Rent 1-Bed/1 Bath 28 559 2.31 1,290 2.67 1,495 3.09 1,725 2-Bed/1 Bath 5 750 2.20 1,652 2.26 1,695 2.53 1,895 2-Bed 1.5-ba T H 1 825 1,290 1,850 2.50 2,060 T otals 34 20,227 46,355 52,185 59,835 Income Current 12 Month Proforma Market Gross Scheduled Rent $556,260 $626,220 $718,020 Vacancy 3.5% $19,469 $21,918 $25,131 Gross Collected Rental Income 536,791 604,302 692,889 Laundry Est. 3,000 3,000 3,000 Gross Income $539,791 $607,302 $695,889 Proforma Expenses Current 3 Proforma 2 Proforma 2 PG&E 10,208 10,208 10,208 Water 9,079 9,079 9,079 Garbage 3,871 3,871 3,871 Resident Manager 6,900 6,900 6,900 Legal & Professional 1,040 1,040 1,040 Cleaning & Maintenance 3,505 3,505 3,505 Gardening 4,225 4,225 4,225 Repairs 42,763 27,200 27,200 Capital Improvements Expensed in Repairs 10,000 10,000 Property T ax 1.2295% 98,360 98,360 98,360 Assessments 10,574 10,574 10,574 License/Permits 1,916 1,916 1,916 Miscellaneous 1,500 1,500 1,500 Plumbing 1,708 1,708 1,708 Insurance 9,649 9,649 9,649 T otal Operating Expenses 205,298 199,735 199,735 Net Operating Income 334,493 407,567 496,154 Expenses as a (%) of Scheduled Rent 36.71% 31.74% 27.70% Expenses per Unit 6,038 5,875 5,875 Expenses Per Sq.Ft. 10.15 9.87 9.87 Cash Flow Analysis Loan Payments 242,886 242,886 242,886 Pre-T ax Cash Flow 91,607 164,681 253,268 10
1-Bedroom Rent Comps 1-Bedroom Comps Subject Rent Comp 1 Rent Comp 2 Rent Comp 3 Name Hidden Willows T anglewood Address 50 Glen Eyrie San Jose 850 Meridian San Jose 970 Meridian San Jose 1195 Brace Feature Rent 1725 1965-2011 1725 1895 RUBS 70 T otal Rent 1965-2011 1795 1895 Square Footage 559 713 600 825 Rent/Sq. Ft 3.09 2.76-2.82 2.99 2.30 Adjustments Size of Unit -75-25 -125 Balcony no -50-25 Pool no -50-50 -50 Fitness Center no -50 Washer/Dryer In Unit no -85 Walk to Downtown Willow Glen yes 85 85 T otal Adjustments -225-15 -175 11
2-Bedroom Rent Comps 2-Bedroom Comps Subject Rent Comp 1 Rent Comp 2 Rent Comp 3 Name Hidden Willows LG Creek Address 50 Glen Eyrie San Jose 850 Meridian San Jose 1029 Meridian 1147 Garfield San Jose Feature Rent 1,895 2311-2414 2,495 1,995 RUBS 0 T otal Rent 2311-2414 2,495 1,995 Square Footage 750 1100 940 825 Rent/Sq. Ft 2.1-2.19 2.65 2.42 Adjustments Size of Unit -125-100 -50 Balcony Some -50-50 0 Second Bath Room no -75-75 0 Pool -50-50 -50 Fitness Center -50-50 Washer/Dryer In Unit -85-125 Walk to Downtown Willow Glen -75-75 -75 T otal Adjustments -510-525 -175 Comparable Rent to Subject 1,895 1801-1904 1,970 1,820 12
Sales Comps Property # of Year Sale Selling Price Units Built Date Total Per Unit Per Sq. Ft. CAP 101 Glen Eyrie 30 1967 Dec-13 7,670,000 255,667 334 3.90% San Jose Saratoga Commons 1600 Petersen Avenue 40 1963 Mar-14 11,410,000 285,250 278 4.08% San Jose 1421 Lago Street 28 1965 Apr-14 9,498,000 339,214 433 4.13% San Mateo Crystal Lake 27 1962 Oct-13 9,350,000 346,296 408 3.24% 1410 Millbrae Ave Millbrae 696 T owle Way 33 1965 Oct-13 13,497,000 409,000 412 2.66% Palo Alto Wellesley 35 1961 Mar-14 14,750,000 421,429 353 4.19% 141 Wellesley Crescent Redwood City Park Ave 12 1961 Apr-14 3,100,000 258,333 258 3.27% 1844 Park Avenue San Jose Brentwood 13 1957 Apr-14 3,425,000 263,462 439 3.27% 375 Saratoga Santa Clara Averages 322,331 364 3.59% Subject Property 40 Glen Eyrie 34 1962 8,000,000 235,294 396 4.25% 13
Rent Stabilization Worksheet COST WORKSHEET PART T WO DEBT SERVICE A PREVIOUS DEBT SERVICE Monthly Cost (previous) 1 No Debt on the Property 0 2 3 B CURRENT DEBT SERVICE Principal amount Monthly Cost (current) 1 Proposed Financing 20,240 2 3 T otal Principal 4,430,000 C LOAN T O VALUE RAT ION 4430000/8000000 55.38% T otal Principal/Value Loan to Value D IF LOAN T O VALUE RAT IO (LV) IS 70% OR LESS 20,240 -- 0 = 20,240 X.8 = T otal monthly T otal monthly Increase in Cost cost cost (current) (previous) 476 Pass through per unit per month 14
15
Barry Krupp 18 E. Main Street Los Gatos, CA 95030 408-402-3930 887 Island Drive 220B Alameda, CA 94502 510-329-1502 16