Goizueta Business School

Due Diligence:
3617 Roswell Road
Prof. Lyle Fogarty

ABCSL Investments: Amanda Lightman – Benjamin Josephs – Cyril

Berdugo – Sanjeev Thakrar – Lindsay Powell
 3617 Roswell Road
Due Dilligence Checklist

Title Exam Specific Conditions

Title Insurance Rezoning
Surveys
Permits
Physical Inspection
Geotech Financing
Environmental Liability Coverage

Zoning Organization Documents

Utilities Entity Documents
Easements Operating Agreements
✔ Market Analysis
Appraisal ✔ Pro Forma Analysis
Contracts with Designers Flood Plan
Estoppels Executed Contract
Tenant interviews Lease Review
Property Inspection Audit of property OpEx
 *More details in Appendix A

Investment Strategy

Pursuing investment in 3617 Roswell Road presents an exciting opportunity to

acquire exposure to Atlanta's highly desirable Buckhead submarket; with its prime
location and existing tenant stability. The location of the property allows optimal access
from Piedmont Road and Lenox traffic, as well as Buckhead's business district and high-
value residential neighborhoods directly off of Roswell Road. Furthermore, the property's
current tenant, although reputable and stable, does not fully capitalize on the location's
potential to serve as a highly attractive retail or mixed-use center. A consideration of the
value proposition offered by development of 3617 Roswell Road, the specific strategy of
acquisition and projected returns scenarios reveals the significant investment opportunity
offered by developing the property.

From a broad perspective, 3617 Roswell Road offers the potential for an ideal
value proposition in that its existing tenant provides long-term stability and income
optimal to service debt payments; and at the same time the property has new
construction/development potential that will attract new tenants delivering higher PSF
rents and increased NOI. Currently, the property has a single tenant, Promove - a fixture
in the Atlanta apartment industry, leasing the existing building for $18 per square foot in
rent for a 30-year NNN lease. After acquisition of the property, our strategy involves
retaining Promove as a tenant, and expanding vertically, creating three floors of brand-
new class A retail or mixed-use space available for lease-up. Our value lies in our in-
depth knowledge of the Atlanta submarket to find new tenants for the space, as well as
ability to negotiate aggressively with builders. With demand from the residential
neighborhoods of Buckhead and business sector of Atlanta in close proximity, we
envision charging an additional $5-$10 PSF for the newly developed space (please see
attached back-of-the-envelope models for further details).
 In order to finance the acquisition, our strategy involves approximately 70%
leverage, with the remaining 30% equity split between two to three partners, with
ABSCL investments committing a minimum of 15% equity. The first step towards
acquisition involves preparation of investor summary materials, and receiving
commitment from additional equity partner(s). As a second step of the acquisition
strategy, our team conducts negotiations with lenders in order to secure attractive rates
for the project. Thirdly, leveraging our relationships within the Atlanta community, we
conduct initial discussions with potential clients for the space. At the same time, our
initial non-binding LOI is submitted to Grubb & Ellis, including our preliminary offer of
$2,300,000. Due diligence will then occur using the comprehensive checklist as a
guideline, as well as simultaneous discussions with architects and builders to ensure the
feasibility of the proposed construction. As a key part of our strategy, the maximum
purchase price our group is willing to pay is $2,450,000, allowing a 17% IRR to
investors.

The step-by-step acquisition strategy and value proposition offered by ABSCL

investments combine to deliver exciting development opportunities for 3617 Roswell
Road. Ideally, as the real estate market accelerates, CAP rates decline, and retail spending
improves, market forces will enhance the proposed redevelopment of the site at 3617
Roswell Road into a leading retail destination for area residents. The property serves as
an optimal target for redevelopment due to its location, current under-usage, and
attractiveness to new tenants.
Market Analysis

"Buckhead is the shopping Mecca of the Southeast, with more than 1,400 retail units and
in excess of $1 billion a year in sales. Forty percent of Buckhead’s shoppers come
from more than 100 miles away." –Atlanta Business Chronicle

Buckhead is one of Atlanta’s most affluent areas. It was recently rated by Forbes
as the ninth-wealthiest zip code in the nation (30327). Its retail market is one of the most
expensive in the southeast. Currently, the Buckhead market is oversupplied in regards to
office space, but retail occupancy in comparable properties still seems to be high because
of the strength of the area. Overall, Atlanta’s vacancy rate is extremely high at 19.6% this
quarter, whereas Buckhead’s lingers around 9%. Additionally, Buckhead has the highest
rental rate of all Atlanta submarkets, at $26.18/SF.

Roswell Road, in particular, is one of the fastest changing areas in Buckhead. It

has a combination of traditional and eccentric real estate, indicating the potential success
for a variety of potential tenants.

MARTA has recently built a new line that provides mass transit for Buckhead and
Sandy Springs, increasing retail traffic in the area. Further development, like the
proposed Peachtree Streetcar project, which would establish an above-ground route to
downtown Atlanta, will contribute to higher retail traffic levels in the future. The traffic
congestion, however, should be a consideration when looking at investments in the area.
The Buckhead Coalition has been looking for ways to improve congestion in the area,
which will make it less burdensome for retail shoppers to enter in and out of Buckhead.
 Property Characteristics

Type: Retail Building

Owner: Grubb & Ellis

Price: $2,490,000

Leasable Space: 7,559 SF

Average Rent: $23/SF
Occupancy: 100%

Cap Rate: 7.24%

Gross Rental Income: $181,488

Operating Expenses: $7,600
NOI: $173,888

Type of lease: Triple Net Lease

Commencement Date: 11/12/2002
Expiration Date: 11/11/2101
Term Remaining: 92 Years / 9 Months
Option to Purchase: Upon 30 days notice

Other:
- Located in highly attractive Buckhead submarket
- Long-Term Triple-Net Lease with established client
- Distressed property - Strong potential for redevelopment
 - Highly attractive investment opportunity.

Appendix A: Detailed due diligence checklist

General address
location
tax ID and governmental designations of the property
record owner of property and period of ownership
past record of owners
Standard Industrial Classification codes applicable to the property
present tenants and subtenants of the property
present uses of the property

Construction/Structures size of the property

number of buildings
number of stories
kind of construction
age
current use and prior uses
previous buildings
date of demolitions
any prior uses
structures on the property other than buildings
structures previously on the property other than buildings
as-built plans
 warranties still in effect and assignability
need for repairs or replacements
building code violation notices or other violation notices pertaining to the
property

Current/proposed
construction plans and specification
construction contracts, subcontracts, architectural services agreements
approvals from all required governmental agencies and private agencies
payment and performance bonds
construction budget and project cost breakdowns
engineering feasibility studies, soil tests, and borings
conditions for construction-completion relating to settlement
presence of lead paint for residential properties
termite inspection
radon inspection
applicability of smoke detector, sprinkler, or similar ordinances

Title Exam examine title insurance policies, reports, and attorney's title certifications
copy of deed
any acquisition agreements, settlement sheets, due diligence items
new title search
ownership
encumbrances
liens
blemishes
suits pending
estoppel certificate from ground lessor
confirm direct access for vehicular and pedestrian ingress/egress to public
street or roadway
evidence of compliance of property with applicable private restrictions and
covenants
mortgages, deeds or trust, liens, encumbrances have been satisfied and
released or arranged for

Title Insurance title insurance commitment

need for reinsurance

Surveys existing surveys

 surveyor's reports
surveyor's certifications
new surveys/updates of existing surveys

Zoning evidence of current zoning and land use classifications

compliance of property with zoning, subdivisions, and land-use laws and
regulations
subdivision approvals, special exceptions, variances, governmental
legislative
and administrative actions concerning zoning, land use and subdivision
matters
violation notices, notices of pending rezoning or land use reclassifications,
and pleadings or filings for zoning, subdivision, or land use actions
need for opinions of counsel
need for title insurance zoning endorsements
dedication or proffers of any portions of the property to any governmental
agency or private body

Utilities utility bills and correspondence

location and purpose of each meter
sources and availability of all required utilities
applicable governmental or private agreements concerning availability of
or hookup to utilities
Easements
Market Analysis
Appraisal all existing appraisals for the property

current bills showing all real property taxes, agricultural taxes, ordinary/spec
Real Property Taxes assessments, water and sewer charges and other impositions
notices of pending reassessments or forthcoming special assessments
challenges, appeals, or other proceedings regarding real property tax matters,
special assessments, and other governmental impositions
agreements with governmental or taxing authorities for deferral or reduction
of real property taxes, impositions, or payments in lieu of taxes
notice of special taxing districts in which property is located
statutory abatement of taxes

orders, decrees, special legislative enactments or agreements enacted by

Specific Conditions federal, state or local government concerning designation of property
as historic, landmark, or subject to similar classification

If applicable – in this case

Rezoning probably not
are there any
Municipal incentives

Permits permits, licenses, and governmental approvals for operation of property

Liability Coverage

Organization Documents
Entity Documents
Operating Agreements
Pro Forma Analysis

estoppel certificates from tenants confirming lease or sublease and details of

Estoppels tenancy
estoppel certificate confirming non-existence of defaults or specifying defaul
estoppel certificate confirming the non existence of any bankruptcy or
similar proceedings by/against the tenant

Audit of property Opex

Tenant interviews itemized listing of operating expenses

amendments, addenda, exhibits, side agreements, lease abstracts
credit worthiness
lease commission agreements
tenant name and suite number
square footage
lease commencement date
lease expiration date
listing of options
annual and monthly base rent including steps
responsibility for taxes, insurance, operating expense stops, base year info
security deposits
rent concessions
rights of first offer or refusal
expansion options
cancellation clauses
preferential clauses or restrictions
responsibility for maintenance, repairs, casualty losses
obligations of parties to make improvements permitted use
real estate tax bills, reassessments, and correspondence
personal property tax bills and correspondence
 financial statements and audit reports
operating and capital budgets
tenant improvement work not started
current on-going construction contracts
notices regarding violation of ordinances
description and cost of major additions, deletions, and renovations completed
or anticipated
latest building inspection reports and certificates of occupancy for the buildin
shell and each tenant space
soil condition property
statutory rights of refusal in favor of any tenants

Insurance evidence of adequate coverage

purchaser has been added as additional indorsed during the contract period
risk of flooding/need for flood insurance
any existing or threatened litigation concerning insurance claims
no casualty loss prior to settlement which has not been properly and fully
repaired
obtain insurance: fire/casualties/hazards on buildings, improvements and
contents; flood insurance if applicable, public liability insurance
if desired: plate glass insurance; business interruption insurance; rent insuran

notes, mortgages, deeds of trust, security agreements, loan documents for

Financing existing financing to be assumed
obtain estoppel certificate

Physical Inspection
Geotech/Environmental underground storage tanks
- lakes, lagoons, impoundments, pits, septic tanks, trenches, dry wells,
catch
basins, ditches, trenches, or open conduits that are or have been on property
pipelines now or previously on property
locations on property where any materials, wastes, or substances have been
released or disposed of
unusual land or soil coloration or other unusual conditions at the property
stressed or unusual vegetation or physical irregularities that might indicate
unusual subsurface conditions or disposal of wastes
an areas that would be or
have been designated under
federal, state, or local
regulations as wetlands,
flood plains, coastal areas,
habitat for endangered
species, or
 historical/archeological
hazardous waste management facilities at property
pollution control, treatment, or pre-treatment equipment or operations
description of fuels used
description of chemicals, compounds, or substances used
solid wastes generated or handled at property
wastewater issues
air issues
asbestos
PCB's
Radon
Lead
CFC's
Drinking water quality
adjacent land characteristics and history of use, operations, and conditions
documentation from property owner and applicable governmental agencies

Lease Review
Executed Contract

*Relevant Sources: http://www.saul.com/publications/details.aspx?pubId=361