Ground-up development of a single-family Build-for-Rent ("BFR") community featuring 321 cottages and numerous on-site amenities in Alabama's fastest-growing county.
Over the last decade, demographic shifts have resulted in major population increases across the sunbelt, and Alabama has been one of its greatest beneficiaries. Baldwin County, along the coast of Alabama, has been the state’s greatest success story. The U.S. Census Bureau reported a population increase of 25.8% between 2010 and 2020 for the county; that increase equates to a net migration of 45,301 residents, making it the fastest growing county in the state and the top 3% among all counties in the U.S.
The population growth story in Baldwin County is primarily a result of the impressive employment growth in this business-friendly community. Baldwin County has added 20,123 new jobs since 2011, equating to an increase of 26%. Although population growth has been strong, it hasn’t been able to keep pace with job growth. The unemployment rate in Baldwin County was reported at 2.7% in July 2022, compared with the national average of 3.5% for the same month.
During a period of excessive growth in Baldwin County, there have been insufficient deliveries of new rental housing in the area. From 2011 to 2017, only 700 new multi-family units were delivered. During the same period, over 12,000 new jobs were added in the county. Delivery of new rental housing began to pick up in the latter half of the decade, averaging 300 units per year between 2016 and 2020. However, data shows that this new housing supply was insufficient, as Baldwin County absorbed an average of 294 units per year during the same period. 2021 saw the first above-average unit deliveries in years, reaching 360 units. However, during the same period, vacancy rates dropped to an average of 3.5%, pointing to pent-up demand for more housing.
Lastly, effective rents have increased 18.2% over the prior five-year period.
The Project is located in Baldwin County, which is the fastest-growing county in the State of Alabama. Since 2010, the population in Baldwin County and the City of Foley have grown by 25.8% and 46.7%, respectively. This impressive growth is driven by thousands of new high-paying jobs. Over this period, the new housing supply has been insufficient, which has resulted in low vacancy rates and strong rent growth. Effective rents have increased 18.2% over the prior five-year period, a trend that is projected to continue.
Following on the success of the Single Family Rental ("SFR") market, Cottages at Foley Farms incorporates all of the best aspects of SFR with the operational efficiency of professionally managed, highly amenitized apartment communities. The Property will offer a more affordable option for the many people being priced out of home ownership due to the increase in interest rates and home prices. This highly efficient product has been termed "Build-for-Rent" or "BFR." This Project marks the third prototype developed by the M4_Ritmo partnership.
Based on a 10-year hold period, the Sponsors estimate returns of more than 19% IRR and 3.5x EMX, generating strong cash flow and considerable long-term value creation for investors.
Target Stabilized Daily Cash on Cash
8.4% (Stabilized Day 4)
# of Units
321
First Units Delivered
2/29/2024
Project Stabilization
4/30/2025
Land Acquisition Price
$3,562,500
Total Development Budget
$68,014,874
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Build-For-Rent ("BFR") development opportunity delivering long-term stable cash flow. Based on a 10-year hold period, the Sponsors estimate returns of more than 19% IRR to investors and a stabilized 7.4% return on cost for the whole Project.
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Cottages at Foley Farms incorporates all of the best aspects of single-family rental with the operational efficiency of professionally managed, highly amenitized apartment communities. The M4_Ritmo Sponsors have designed a differentiated product to meet the needs of the growing demographic of renters looking for the best aspects of apartment living in a planned community setting while enjoying their own single-family, detached home.
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While Baldwin County has experienced outstanding population and employment growth over the past ten years, the supply of new housing has been insufficient. The lack of quality rental housing has resulted in an increase in effective rents of 18.2% over the prior five-year period and an average vacancy rate of 3.5% for 2021.
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Access to Mobile Bay, two interstate systems, and five Class 1 railways has made Baldwin County an ideal location for firms to relocate their operations. As a result, the county has added an astounding 20,000 new jobs since 2011, a 26% increase. Major firms include Airbus, Collins Aerospace, Austel, and Novelis
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In addition to its access to Mobile Bay, Pensacola, FL, and the diverse employment options in Baldwin County, Foley is less than 12 miles from Florida’s Gulf Coast, benefitting from numerous tourism amenities. This access results in a diversified renter base to include both working professionals and an aging, downsizer demographic.
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The Project benefits from outstanding Sponsorship with over 50 years and $3.0 billion worth of combined multifamily and homebuilding development experience. The Principals have worked for some of the nation's leading development firms. The Project marks the Sponsor's third Cottages development in Alabama.
Business Plan
Ritmo Properties and M4 Development (the "Sponsors") are proud to present an opportunity to invest in the ground-up development of Cottages at Foley Farms (the "Project"), a master-planned single-family rental community located in the City of Foley in Baldwin County, Alabama - the fastest growing county in the state.
The Project will consist of 321 single-story cottages with parking, storage, pool, and clubhouse amenities. The development will utilize a phased construction that will take an estimated 29 months to complete. The Project will consist of the construction of 321 cottages, 64 garages, 30 storage units, infrastructure, a clubhouse, a pool/grilling area, and a pet park.
The Project has been financed with a floating-rate construction loan provided by Regions Bank. The terms of the loan are approximately 75% loan-to-cost with a term of 4 years plus a 1-year extension option at a rate of 250 bps over SOFR (0.50% SOFR floor). Total Project costs are anticipated to be roughly $68 million (or $212,000 per cottage).
Current underwriting assumes a phased delivery and a lease-up pace of 25 cottages per month with a refinance in Year 5 based on a 75% LTV, 1.20x DSCR assuming a 5.50% interest rate, and a 5.50% exit cap rate. Disposition is underwritten in Year 10 at a 5.50% exit cap rate.
Upon stabilization, the Sponsors will determine whether to extend, modify or refinance the construction loan. The partnership plans to hold the asset for an estimated 7-10 years, however, the hold strategy is subject to change based on market conditions.
Development Cost
$ Amount
Per Unit
Land Acquisition Costs
$3,562,500
$27,859
Hard Costs
Site Work
$2,947,650
$12,615
Construction
$25,152,134
$148,426
General Contractor's Fee & Overhead
$2,504,643
$9,545
Contingency
$2,485,061
$18,218
FF&E
$976,080
$8,745
Total Hard Costs
$37,730,288
$195,374
Soft Cost
Municipal Permits & Fees
$1,094,193
$5,820
Architectural, Engineering & Survey
$934,495
$4,827
Taxes & Insurance
$1,230,515
$5,483
Marketing, Sales & Leasing Costs
$254,650
$1,862
Legal & Due Diligence
$122,432
$1240
Other Soft Costs
$323,044
$1,260
Total Softs Costs
$3,872,611
$20,599
Financial Costs
Interest Reserve
$3,164,577
$16,588
Operating Carry
$912,881
$4,856
Financing Costs
$78,545,200
$8,060
Total Financing Costs
$8,248,430
$25,503
Development Fee
$1,876, 975
$10, 976
Grand Total
$68, 014, 874
$302,480
Property Details
Alders at Prosper (the "Project") will be a Class A active adult development consisting of 188 one- and two-bedroom units built around tremendous community amenities. The Project will cater to the affluent demographics of the Prosper area and be able to draw upon the region's growing population and numerous neighborhood restaurants, shopping, and hotels.
Unit Mix
Unit Type
# of Units
Avg SF/Unit
$ / Unit
$ / SF
A - 1x1
108
814
781
$1,375
$1.76
B - 2x2
103
1162
$1,735
$1.49
C - 2x2
110
1177
$1,750
$1.49
55%
Total/Averages
321
1039
$1,619
$1.56
Comparables
Lease Comparables
Colonial Grand at Traditions Gulf Shores
Sevilla Place Apartments
The Reserve of Foley
Magnolia Landing Apartments
Year Built
2017/2021
2019
2018
2020
# of Units
324
120
360
264
Average Unit Size
993 SF
1,260 SF
1,115 SF
961 SF
Occupancy
96%
98%
98%
100%
Distance from Subject
4.0 mi
1.2 mi
1.9 mi
1.4 mi
$/Unit (1x1)
$1,373
$1,168
$1,350
$936
SF (1x1)
816
951
945
842
$/SF (1x1)
$1,268
$1,323
$1,43
$1,911
Sales Comparables
Active Adult Sales Comps
Palladian at Daphne
The Village at Hickory
Meridian at the Port
Gulf Stream
Sandy Shores Village
Averages
Date Sold
12/1/2021
10/1/2021
10/1/2021
9/1/2021
7/1/2021
Year Built
2017
2021
2019
2021
2016
2019
# of Units
120
120
267
64
108
Average Unit Size
1794 SF
1600 SF
853 SF
1440 SF
1218 SF
1381 SF
Sale Price
$31,000,000
$43,200,000
$69,500,000
$21,100,000
$23,150,000
$37,590,000
$/Unit
$258,333
$360,000
$260,300
$329,688
$214,352
$/SF
$144
$225
$305
$229
$176
$216
Cap Rate
4.37%
4.30%
3.92%
4.24%
4.50%
4.27%
Distance from Subject
27.4 mi
2.6 mi
44.4 mi
9.4 mi
21.0 mi
Address
27821 State Highway 181, Daphne, AL 36526
904 Shagbark Rd, Foley, AL 36535
300 N Water St, Mobile, AL 36602
24802 Gulf Stream Cir, Orange Beach, AL 36561
25624 W Perdido Ave, Orange Beach, AL 36561
Financial Projections
Sources and Uses
Total Capitalization
Sources of Funds
$ Amount
$/Unit
Debt
$50,828,632
$158,345
GP Investor Equity(1)
$171,863
$535
LP Investor Equity
$17,014,379
$53,004
Total Sources of Funds
$68,014,874
$211,884
Uses of Funds
$ Amount
$/Unit
Residential Hard Costs
$30,593,216
$95,306
Amenity Hard Costs
$2,555,877
$7,9621
Infrastructure
$17,923,300
$55,836
Soft Costs
$5,577,222
$17,375
Owner's Contingencies
$3,100,000
$9,657
Development Fee
$2,408,756
$7,504
Operating Deficit & Interest Reserve
$2,039,860
$6,355
Loan Fee
$254,143
$792
Land
$3,562,500
$11,098
Total Uses of Funds
$68,014,874
$211,884
(1). The Sponsor's equity contribution may consist of friends and family equity and equity from funds controlled by the Sponsor.
(2). Reliance Technologies, LLC, an affiliate of ReliancePropertiesRealtor, operates the ReliancePropertiesRealtor Platform. Reliance Technologies, LLC charges a fixed, non-percentage-based fee for real estate companies and their sponsors to use the Platform and for Platform-related services. Please see the Fees and Disclaimers sections below for additional information concerning fees paid to Reliance Technologies, LLC.
Debt Assumptions
The expected terms of the debt financing are as follows:
Construction Loan
Lender: Regions Bank
Term: 4+1
LTC: 74.7%
Estimated Proceeds: $50,828,632
Interest Type: Floating
Annual Interest Rate: 2.5%
Interest-Only Period:42 months
Amortization: 30 years
Prepayment Terms: N/A
Extension Requirements:1-year option
Term Sheet: Executed
Permanent Loan Period
Refinance Date: 8/31/2027
Lender: TBD
Interest-Only Period: TBD
Amortization: 30 years
Estimated Proceeds:$66,020,000
Terms: TBD
Extension Requirements: Construction loan converts to Permanent loan following the interest-only period
Annual Interest Rate:5.5%
Interest Type:Fixed
(1). A substantial portion of the total acquisition for the Property will be paid with borrowed funds, i.e., debt. Please carefully review the Disclaimers section below for additional information concerning the Sponsors use of debt.
Distributions
Ritmo Properties & M4 Development intend to make distributions as follows:
Cash Flow from Operations
(1).Prior to Stabilization of the Property (defined as 90% occupied for 90 consecutive days) and before Co-Investors are being paid current on their preferred return (8%), the Cash Flow will be distributed 99% to the Equity Co-Investors and 1% to Sponsors pro rata.
(2). Thereafter, the Cash Flow will be distributed 70% to Equity Co-Investors and 30% to Sponsors (the "Sponsor Promote").
Cash Flow from Capital Transactions
1. Prior to return of capital, Capital Transactions will be distributed 99% to the Equity Co-Investors and 1% to Sponsors pro rata.
2. Thereafter, the Capital Transactions will be distributed 70% to Equity Co-Investors and 30% to Sponsors (the "Sponsor Promote").
Ritmo Properties & M4 Development intend to make distributions to investors after the payment of the company's liabilities (loan payments, operating expenses, and other fees as more specifically set forth in the LLC agreements, in addition to any member loans or returns due on member loan)
Distributions are expected to start in May 2025 and are projected to continue on a quarterly basis thereafter. Distributions are at the discretion of Ritmo Properties & M4 Development, who may decide to delay distributions for any reason, including maintenance or capital reserves.
Ritmo Properties & M4 Development will receive a promoted/carried interest as indicated above.
(1). (1) Reliance Technologies, LLC and its affiliates do not provide any assurance of returns. Returns presented are net of all fees. Please carefully review the Fees and Disclaimers sections below for additional information concerning Sponsor's use or projected returns and fees paid to Sponsor and Reliance Technologies, LLC.
Fees
Certain fees and compensation will be paid over the life of the transaction; please refer to Alder Development Group's materials for details. The following fees and compensation will be paid.
One-Time Fees:
Type of Fee
Amount of Fee
Received By
Paid From Notes
Notes
Developer Fee
$2,408,756
Ritmo Properties & M4 Development
Upfront Capitalization
3.5% of the Total Project Cost
Technology Solution Licensing Fee
Flat one-time licensing fees of $15,000 plus $1,500 per each prospective investor onboarded by Sponsor through its license and use of EP Technologies’ Technology Solution
Reliance Technologies, LLC
Capitalization (at Sponsor's discretion)
Recurring Fees:
Type of Fee
Amount of Fee
Received By
Paid From
Notes
Asset Management Fee
$75,000/year
Ritmo Properties & M4 Development
Cash Flow
Will be paid monthly after construction completion
Administration Solution Licensing Fee
Flat quarterly licensing fee of $125 per investor serviced by Sponsor through the license and use of EP Technologies’ Administration Solution
Reliance Technologies, LLC
Cash Flow
(1). Fees may be deferred to reduce impact to investor distributions.
(2). Please see the Fees and Disclaimers sections below for additional information concerning fees paid to Reliance Technologies, LLC.
Management
Ritmo Properties and M4 Development
The Cottages joint venture is sponsored by Ritmo Properties and M4 Development. Ritmo Properties is owned and operated by Steve and Christy Strazzella, who have collectively been in the residential and commercial real estate markets since 1989 performing their own development, design, and general contracting services on single-family homes, townhouses, and multifamily apartment buildings. Steve has managed more than $2 billion in multifamily real estate construction and development projects for some of the largest firms in the country.
M4 Development was formed in July 2010. Its Principals, Jonathan Meyers and Joseph Meyers, have in-depth experience in developing numerous product types within various real estate disciplines. Within the last five years, M4 has developed or has under construction 2 multi-family projects, 3 single-family subdivisions, and 3 build-for-rent communities. The thorough analysis of projects utilizing their extensive knowledge and background in development and construction has translated into the success of the projects they have pursued.
Track Record
Property
City, State
Asset Type
Built
Units or SF
Total Project Cost
Sale Price/Est. Value
Cottages at Oak Grove Dairy
Huntsville, AL
BFR
9/27/2020
318
$54,000,000
$120,000,000
Cottages at Dothan (Phase 1)
Dothan, AL
BFR
1/1/2017
120
$15,700,000
$32,200,000
M4 Development Experience
Project Descriptions
Year
Location
SF
Type
Use
Project Value
Orchard Park
2013-2016
Dothan, AL
29 Lots
Subdivision
Residential
$5,365,000
Mayberry Subdivision
2017-2019
New Brockton, AL
70 Lots
Subdivision
Residential
$14,250,000
Highland Cove
2017-Present
Dothan, AL
53 Lots
Subdivision
Residential
$17,225,000
Camellia Apartments
2018-Present
Enterprise, AL
176 Lots
Multifamily
Commercial/Residential
$28,000,000
Cottages Bentonville, AR
2020-Present
Present Bentonville, ALL
350 Units
Build for Rent (BFR)
Commercial/Residential
$94,000,000
Cottages Dothan Phase 2 & 3
2019-Present
Dothan, AL
90 Units
Build for Rent (BFR)
Commercial/Residential
$17,200,000
Cottages Dothan Phase 5 & 6
2020-Present
Dothan, AL
121 Units
Build for Rent (BFR)
Commercial/Residential
$21,237,000
Cottages at Magnolia Place
2020-Present
Foley, AL
300 Units
Build for Rent (BFR)
Commercial/Residential
$81,421,000
Total
1,189 Units
$278,698,00
* The above bios and track record were provided by Ritmo Properties and M4 Development and have not been independently verified by EquinoxProperties.
