Rich Kids of the SEC - part 2

As instructed, I met the city planner. I was warned he had high standards, having previously worked in Naples. And boy did he ever. He pointed me toward a posterboard on an easel showing a beautiful rendering of a classic-looking seven-story brick student housing project that was under construction. Christ.

I came out and called my contractor immediately about all the glass and different types of brick and fake shutters etc. Sure, my construction cost would go up a few bucks a foot, but hopefully not break the bank. The returns were definitely going to get a little tighter (maybe lost 30 bps of yield doing some napkin math), but at this point I had fully grasped the greatness of the location. It was still worth pursuing the use approval.

Part of what attracted me to Auburn was what a charming, almost waspy, buttoned-up place it seemed to be. I knew I was in the right place when they did a pledge of allegiance at the beginning of the city council meeting, followed by a ceremony honoring the Auburn HS girls’ golf team for winning state.

As instructed by the planner, I’d brought detailed architectural elevations of a 3-story brick building with all the requested aesthetic features plus a drive-by video of what it might look like to someone flying by on Glenn Ave.

The councilman whose district I was in, a fat bearded guy with a videography business and probably a fedora at home, voted against my use. But the mayor had my back for some reason, so I passed, and I’ll never forget that.

After appearing in these public hearings, I got a cold call from a local banker hunting for construction loan borrowers. I greatly respected that level of hustle and wanted to give him a chance.

Then the feasibility study I got – which I got because I knew people would ask – said it would be a lesser-yielding project due to construction cost, despite approving of the demand and high rents.

I don’t know why he wrote that. He knew a lot of people and markets in Alabama and maybe came into the assignment with a bias. Either way, he refused to change it, even after a highly confident testimony from my design-build guy on the likely cost per foot. But the feasibility guy stuck at $70/sf and wouldn’t change it, and the note scared off the banker who had cold-called me. I still think the market study guy is a dickhead for that, because it ended up costing a good bit less.

At some point I discovered the site was in an opportunity zone. And around this time I had narrowed the project down to a couple likely ‘backers,’ and both were enthused to learn it was in an opportunity zone. The tax benefits of such a project could help the equity absorb a slightly more expensive building.

Note: it wouldn’t just be a slightly more expensive building than what I had originally envisioned upon finding the site; any lingering little question mark about whether it would be multistory was quickly and officially answered once we got deeper into design. The capital partner I fell in with set me up with a project manager, who did some ‘discovery’ and explained it was not normal for me to be waiting for a proper civil site plan as long as we had been. He summarily fired that original engineer and we swiftly got our hands on a proper site plan, from a bigger firm, which clearly proved how silly I was to fantasize that this might NOT be a multistory. It was going to have to be 3 stories to make it a good-sized facility.

As for getting permitted in the city, it was painful but not impossible.

The fire department, as they are known for doing everywhere, had some ridiculous and arbitrary site plan requirements like big drive aisle widths and loading areas. And when I was given the choice between donating $35,000 to a sidewalk fund (a fee none of us had budgeted for or could’ve predicted) or just building a sidewalk myself, I told them we’d build one ourselves (this frontage was a comical location for a sidewalk). Unfortunately, they decided to remove that option and force the donation to the fund.

Here’s how the hard cost ultimately shook out, contemplating both the multistory aspect and the expensive cosmetics, fully designed with hard bids:

Adding in soft costs and financing costs and all, this whole thing was way more expensive than I had originally pictured, but I still believed it was a solid deal, especially if we were going to own it for 10 years. My backer had no problem bringing a country bank from his neck of the woods at 80% LTC and we got it closed. Here was the final pro forma and model:

I put on a suit and got the mayor of Auburn out there for a groundbreaking ceremony. I knew that was ridiculous for a storage facility, but I didn’t give a fuck, it was awesome.

A bad thing that happened after sitework began was the massive amount of dirt that had to be taken out. It was going to be like 200 dump trucks worth of dirt. What the fuck is going on? I thought you guys read the Geotech and told me the budget was fine. Well, the GC representative who’d told me everything was fine was not a project manager. He was a bizdev guy, basically checked out once I signed their contract.

The 3rd party owners’ rep I had been set up with asked for the Geotech. He highlighted like ten things that would be a red flag, if he had been involved early on. The site had been owned in the past by a grading company who had used it as a borrow pit. That was old news to me, but it contributed more to the issue than I expected. Well shit. We couldn’t stop at this point. The overrun specific to the bad dirt was well over $100,000, going up every week, and I had only $153,000 in contingency.

[to be continued]