QUESTIONS/COMMENTS

AAA HOME BUILDER, LLC

SHADY HOLLOW

1. Of the 68 single family homes proposed for Shady Hollow, it appears

that none of the homes will be affordable to low income (less than or
equal to 50% AMFI) or moderate income (less than or equal to 80%
AMFI) buyers. AAA Home Builder shows only 80% AMFI and 140% AMFI
in their proposal and expresses a desire to focus on 140% AMFI buyers.
2. It appears that the November, 2015 Purchase and Sale Agreement is
no longer valid, unless Buyer and Seller have both agreed to extend
the time for closing. Based on the November 18, 2015 Contract, the
Feasibility Period would have expired in 45 days, say January 10, 2016,
with closing of the transaction occurring ten days later, about January
20, 2016. The City should have required some documentation to
support the validity of the contract, before City Council approved the
project on May 25, 2016.
3. The February 12, 2016 Application appears to represent that the
project will consist of 16.5 acres, but the Purchase and Sale Agreement
appears to be for only 9 acres or so?
4. The proposed timeline for development is not feasible. AAA Home
Builder states, AAA plans to build 12 single family homes at
groundbreaking while developing infrastructure for the entire site, and
then build the remaining (56) homes. Firstly, construction of any
homes cannot start until the subdivision plat is approved by the City.
Platting creates the legal description for each of the lots, and it is not
merely a paperwork process. Before an application for plat approval
can be accepted by the City, all (or a very substantial portion) of the
land development must be completed. The City cannot approve a
subdivision plat until the roads, curb and gutter, sidewalks, sanitary
sewer, storm sewer, water, electric, telephone, cable tv, etc. are
physically constructed, inspected, and approved (by the City). Until this
platting process is completed, no lender will close on a construction
loan for any of the houses. Therefore, with about 3-5 weeks for final
engineering, 2-3 weeks for the City to issue Land Disturbance Permits

5.

6.

7.

8.

9.

and Land Development Permits, followed by 3-4 months of land

development construction, etc. a more realistic start date for house
construction would be more like late December or early January (the
City will not issue building permits for each of the houses until the new
lots have been platted), well outside of the Citys 120 day criteria.
Despite an express desire to preserve and incorporate many of the
great trees into the site, AAA Home Builders will likely be
unsuccessful. Mature trees have a root ball roughly equal to the
diameter of the outward branches of the tree, easily 50-60 feet in
diameter. This root ball area cannot be disturbed during construction,
nor can the finish grade be changed, nor can the root ball area be
infringed upon by impervious surfaces such as roadways, driveways,
building slabs, etc. Adding to the challenge, the site is to be developed
into 68 smallish lots of only 7500 square feet each. Because of these
factors, very few (if any) of the trees will be saved.
The project is significantly undercapitalized. The total project costs are
stated as $10,310,000. However, only $3,950,000 ($300,000 in Builder
Equity Financing, $1,400,000 in COD Grant, and $2,250,000 in
Construction Loan) of financing is demonstrated, leaving a shortfall of
$6,360,000.
The initial phase of Land Development is undercapitalized. The Land
Development costs are stated as $2,150,000 ($10,310,000 total
project cost, less $8,160,000 House Construction costs), but only
$1,700,000 ($300,000 in AAA Builder Equity, plus $1,400,000 COD
Grant) in financing is available, indicating a shortfall of $450,000. This
is especially worrisome when one considers this shortfall relative to the
importance of getting land development completed (See #4 above).
The Land Development costs of $1,850,000 (excluding land cost) are
extremely high at about $27,206 per lot, or about $453 per front foot
(assuming 60 x 125 lots). Unless there are some unusual conditions at
the site, these land development costs could be twice what will
actually be encountered. An amount of $15,000 per lot, or $250 per
front foot would be more typical.
The House Construction is undercapitalized. House Construction costs
are stated as $8,160,000 (or $120,000 per house) which seems
reasonable. However, the Construction financing is limited to 12
houses at a time with a total loan amount of $2,250,000. This capital
restraint will significantly hamper AAAs desire to quickly build these
68 houses. Even if the Construction loan is structured as a revolver,
which is not unusual, the limitation of 12 houses will severely restrict
AAA from building the project in a two-phase process. Regardless of

absorption, the project will drag on for many months merely because
the Construction Loan will limit AAA to a maximum of 12 houses under
construction/inventory for sale at any given time.
10.
The detailed House Construction Budget shows a Land Cost of
$30,000 for each house to be constructed. Given that AAA is both the
developer and the builder, there is no reason for AAA to sell itself each
lot for $30,000 (a total of $2,040,000 for the 68 lots), although it
represents a fantastic return on its $300,000 investment.
11. AAA Home Builders March 30, 2016 letter to the Citys Housing
Department seems to withdraw the Shady Hollow proposal due to
timeframes with infrastructure and engineering.