Kevin Merrill

Real Estate 510 Final Report Option 1

EXECUTIVE SUMMARY

OVERVIEW

This report presents a site analysis for the LIV Seattle Apartments property located in the
University District of Seattle, WA. LIV is a residential property geared towards housing students
at the University of Washington. The owner and developer is CA Ventures which owns
numerous properties in the student, senior, and hospitality sectors. The student living branch of
CA Ventures is focused on providing high-end student living while also generating great return
for investors. Based on their portfolio the company tends to hold their student properties for
many years. Since LIV is a relatively new project it can be assumed that CA Ventures is planning
to hold the property for at least the next five years and will be focused on maximizing its profit
during that time. Therefore, the analysis and appraisal done in this report is focused on
determining the current and forecasted state of the market, how much return LIV is projected
to generate over the next five years, and the estimated value of the property. This is important
data for CA Ventures, investors who may be thinking about investing with the developer, and
buyers looking at this property or similar ones in the area.

SITE SPECIFICS

PROPERTY: LIV Seattle ADDRESS: 4717 Brooklyn Avenue NE, Seattle, WA, 98105

YEAR BUILT: 2015 OWNER/DEVELOPER: CA Ventures

PROPERTY DETAILS: 7 story mid-rise apartments, 56 units, 2,400 SF retail

ANALYSIS

After being built in 2015, LIV is primed to be one of the top properties in the University
Districts hot student housing market. By 2021 the property is estimated to earn an NOI of
$592,392.43 and be valued at $14,104,581.69.
LOCATION

SITE LIV SEATTLE APARTMENTS

The LIV Seattle Apartments are located near the center of the University District neighborhood
of Seattle. The apartment is a 7 story, 56 unit structure with 62,000 SF of residential space as
well as 2,400 SF of retail on the ground floor. The site has eight parking spaces below grade but
does not offer any parking to residents. The plot is 0.09 acres and is zoned as Neighborhood
Commercial3-65. The surrounding area contains a mix of residential, mixed use, and retail.
Specifically, the site shares the block with two small retail stores as well as a Walgreens and a
popular Indian restaurant named Cedars. Across the street there is a Safeway grocery store and
large parking lot as well as a vacant lot with an abandoned gas station structure. A proposal for
a new 6 story mixed use building to be built on this vacant lot with 74 units and 5,885 SF of
retail space was approved in July of 2016. The initial permit to build the LIV apartments was
issued in March of 2013 and construction was completed in September of 2015 in time for the
beginning of the 2015-2016 school year. The apartment is within walking distance of the
University of Washington campus as well as many King County Metro bus lines and a light rail
station that is scheduled to open in 2021.
NEIGHBORHOOD UNIVERSITY DISTRICT

The University District neighborhood of Seattle is located north of downtown and is home to
the University of Washington. The US Census shows that the neighborhood has a population of
over 27,000 and is much denser and younger than the average population of Seattle.
Specifically, the median age is 24.7 and the population density per square mile is 9,857. Over
half of the population of the University District makes $25,000 or less per year which is mainly
due to the large student population. The neighborhood is approximately 2 square miles and is
bordered by I-5 on the west, by 25th Avenue NE on the east, by NE Ravenna Boulevard on the
north, and by the Lake Washington ship canal on the south. The University campus takes up the
majority of the southeastern portion of the neighborhood. A large retail sector centers around
the north-to-south running University Avenue, commonly called the Ave. The residential
areas are made up of a combination of houses, dormitories, apartments, and Greek sororities
and fraternities. There are 5,210 apartment units in the University District with a forecast of
1,063 new units being built in 2017 according to Dupre & Scott. Only 6% of all units in the
neighborhood are owner occupied. A light rail station recently opened on the south end of the
University campus and another station is soon to open on the north side of the neighborhood.
These critical transportation nodes allow for easier commuting to downtown Seattle, Capitol
Hill, and Sea-Tac Airport.

CITY SEATTLE

Seattle currently has a booming real estate market. Since 2010 the number of total housing
units has increased by 10% and there is a total of 20,176 multi-family units currently under
construction. In 2014 the citys median gross rent was $1,179 and residents spent an average of
19.85% of their income on rent. In that same year 40.7% of the housing population were
renters. According to The Seattle Times the citys population has increased by 15,000 in the last
year and is the fourth fastest growing city in the United States. The article also states that
Seattles population increased 66% faster than the rest of King County, second only to the city
of Bellevue. The US Census projects that the city will grow by another 7.7% by 2021. Seattles
vacancy rate amongst 3-5 star apartments has decreased steadily over the past five years and
now sits at 5.6%. With this increase in population and housing has also come a 19% increase in
reported crime.

MARKET ANALYSIS

There are a total 5,257 3-5 star apartments in the University District. In 2016, over 600 3-5 star
units began construction and another 600 units are planned for construction in 2017. The
average rental price per unit in the neighborhood is $1,733 which is significantly higher than the
average unit cost of LIV apartments at $1,288. LIV is currently facing a 5.4% vacancy rate which
is slightly lower than the 5.5% average vacancy rate in University District. Within a 1-mile radius
of LIV Seattle Apartments, CoStar lists that there is a population of 42,821 with an average age
of 30.7 and median household income of $43,491.

LIV Seattle is designed as student housing for University of Washington students. The
apartments marketing specifically reaches out to students and their parents and emphasizes its
close proximity to the university and its inclusion of study rooms and stress relieving amenities.
LIV will have to compete with a variety of other student housing options such as dormitories,
Greek housing, and apartments. Within a few block radius of the LIV apartments are the Prexy
apartments and the HUB On Campus apartments. Both of these apartments are also designed
specifically as university student housing. Prexy was opened in 2016, a year after LIV, and the
HUB On Campus is currently finishing up construction and is scheduled to open in August 2017.
Doing a market analysis that compares LIV with these other student housing options can give us
further insight into LIVs position in the University District student housing market. These
apartments were selected because of their similarities in year built, target market, location, and
amenities, although there are several key differences that must be analyzed.

All three apartments offer high end amenities such as free high-speed Wi-Fi, rooftop lounges,
gyms, and study rooms. The LIV apartment is designed mainly for students who want to live in
groups and offers only 2 bedroom, 4 bedroom, and 5 bedroom options at rents ranging from
$1,100 to $1,385. The HUB On Campus apartments offer a wider range of unit types from
studio apartments to 4 bedroom apartments. The prices of the HUB units are cheaper than LIV
for the multiple bedroom units yet the 1 bedroom apartments are relatively expensive at
$1,625. The Prexy apartments are designed for smaller groups or individuals and only offers
studio, 1 bedroom, and 2 bedroom rental options. The Prexy apartments are the most
expensive on average and range from $1,255 to $2,025. A table further detailing the units,
pricing, amenities, and vacancy rates of the three properties is provided below for comparison.

Overall, the University District housing market is booming and there are many student housing
options that the LIV apartments will have to compete with. LIVs vacancy rates are slightly
below average for the area, but Prexys lower vacancy suggests that there may be a larger
population of students that are looking for single living situations rather than multiple-bedroom
apartment units. The HUB On Campus apartment that is scheduled to open this August poses a
threat to LIV because it offers similar amenities and location with cheaper rents. The University
of Washington dormitories are another big competitor in the neighborhood and offer cheaper
prices than LIV. In order to draw students away from the dormitories LIV will need to market
the benefits of their group living situations and the freedom they offer of living off campus. One
aspect to note is that LIV does not offer any on-site parking to residents. The dormitories and
Prexy do not have parking either but the HUB On Campus will. Although there are many public
transportation options in University District this could deter potential residents who own
vehicles. Overall, it seems that the future of the student housing market in University District is
very promising and CA Ventures can definitely capitalize if they emphasize what separates them
from other comps in the area.

APPRAISAL

Using estimated rent, vacancy, annual changes, and expense data it is possible to calculate the
net operating income that LIV can expect to receive over the next five years from 2017-2021.
Since CA Ventures places a lot of importance on generating return for investors it will be
important to assess the revenue generating potential of the property. This information, along
with estimated cap rates, will also allow us to use the income approach to appraise the value of
the property. Out of the three major valuation methods, the income approach is the best to use
in this scenario because LIV is a large and income-producing apartment property.

The rental prices for LIVs 2-bedroom, 4-bedroom, and 5-bedroom units are listed online. It is
estimated that rent rates will increase by 3% per year. The occupation of the 2,400 SF of retail
on the first floor is listed as renting at $32/SF a year and it is assumed this will stay constant for
the next five years. LIV does not offer parking for its residents. LIVs vacancy rate is currently
listed on CoStar as 5.4% and it will be assumed that it will stay at approximately that rate. Based
on data from residential units in the Seattle area it is estimated that LIVs operating expenses
will be 38% of their EGI. All of the data and estimations are listed in the table below.

Using this information we can now estimate LIVs net operating income over the next five years
by calculating Gross Potential Income (GPI) and factoring in vacancy rates to arrive at Effective
Gross Income (EGI). Subtracting Operating Expenses (Op Exp) at our estimated 38% of EGI
results in LIVs estimated Net Operating Income (NOI). This process over the next five years is
shown in the below table.

The resulting data shows that LIV can expect an NOI of well over $500,000 for the next five
years with an approximate increase of 3% each year. According to CoStar, five properties similar
to LIV have been sold in the past five years. The average sales price of these transactions was
$12,468,000 and the cap rate was 4.2%. Using this cap rate and our estimated NOI data it is
possible to estimate the value of the LIV property. This results in LIV being valued at
$12,658,161.95 in 2017 and shows the value increasing to $14,104,581.69 by 2021.

CONCLUSION

After opening in 2015 the LIV Seattle Apartments is primed to be one of the premier student
housing options in the University District. The propertys vacancy rate is slightly below average
and the property value is higher than the selling prices of recent transactions in the area.
Compared to other student housing options LIV stands out due to its high-end amenities and
large group units, although they do not offer parking and have higher prices than many comps.
The HUB On Campus apartment opening next year will be a top competitor with LIV.

By 2021 it is predicted that LIV will earn an NOI of $592,392.43 and will be valued at
$14,104,581.69. As mentioned earlier, 2021 will also see the opening of a light rail station
within walking distance of LIV as well as a projected 7.7% increase in population from 2016. The
main concerns for LIV are the recent rise in crime statistics and the increase in competing
student housing options. CA Ventures and its investors stand to make consistent revenue so
long as LIV is able to continue attracting students and controlling expenses.