Acquired in June of 2020, The Columbia, an 18-Unit Luxury Rental Building, has been our most difficult project to date. Today, almost four years later, we are finally getting close to opening its doors. As tough as this project has been, it has shown our resilience as investors & developers and taught us NO ONE is looking out for us like we look out for ourselves. It has also proven that we get shit done.
Standing at four stories and 21,000 square feet, the building has turned out absolutely stunning (stay tuned for the full drop of professionally staged photos and marketing videos). But, with its beauty has come sleepless nights, stressful seasons and times where we wanted to give up on real estate. Purchasing a few months into the start of COVID-19, we expected this project to have some twists and turns, but we never anticipated how much we would learn and how many times we would be tested.
If we were to go into detail about everything we have learned and dealt with during this project we'd be better off writing a book. But since this story isn't over, and we still don't have our certificate of occupancy (CO), we'll just list a few items out.
How it started...
Find, cold call and negotiate purchase of property directly with seller over the course of a year
Raise $1M to purchase property, demolish the existing eminently dangerous theatre and pay for pre-development and soft costs
Coordinate and manage $100k pre-development process including architect, civil/structural/MEP engineers.
Coordinate submission to City of Phila for demolition & building permits
Hire GC to oversee $100k demolition of existing 11,000 sq ft theatre
Hire GC to build newly approved 21,000 sq ft. 2.8M build
Find $2.8M construction loan
Then it got interesting...
Lumber & material prices skyrocket, new build cost $3.5M
Find & secure $3.5M construction loan
Begin construction, find out inspector is requiring a $38k shoring job for foundation wall that requires permission from neighbor to set up a temporary fence 6 inches onto their property line.
Find, cold call neighbor to ask for permission. Neighbor refuses access and gets attorney involved
Come up with new foundation detail to avoid needing to use any part of their land even temporarily
Begin construction
Deal with neighbors trying to extort money from us for numerous "reasons" through local news
Continue construction, everything going smoothly with completion date of 9/1/23
Create website, coordinate marketing materials, market the new units
Then shit really hit the fan...
August 2023, begin pre-leasing units. Signed four leases in two weeks
Electrical meter stack allowing power to building on backorder for a year & still has not arrived (COVID 19 aluminum shortage)
Construction delayed with no date of arrival for meter stack
We then spent September/October searching tirelessly for the part, calling dozens of supply houses and third party distributors. We found out that this is not an isolated issue and these parts are nearly impossible to come by. We looked into alternative solutions, building them custom, and flying across the country to pick them up off Ebay. Our GC and their hired electrician were aware of this situation affecting a number of their own builds. We finally figured out an alternative solution at the beginning of November which requires amended plans to be submitted. They are actively, as of today, finishing up the electrical meter stack install at The Columbia. And now here is the real kicker. Our construction loan was set to convert to permanent financing 12/2/23 if the project was complete. With all the issues and unknowns, this will not be occurring. Why is this such a big deal? We were locked into a 3.95% permanent rate. As many of you know, rates are now the highest they've been in decades and hovering in the mid 7% range. This SUCKS for two main reasons;
Cash flow will be squeezed.
Large commercial loans are heavily weighted off of DSCR (debt to service coverage ratio).
So what does that mean? Less cash flow, higher rates, less security for the bank resulting in much less leverage. This creates a re-balancing of debt. In this case, to the tune of $584,000. We have since negotiated with the bank over the past few weeks. We have them agreeing to "play ball" a bit. We negotiated the re-balance down to around $200,000 out of pocket and the rate to 6%. We have fought off other developers during acquisition, neighbors during construction and a handful of other uncontrollables over the past few years. We are in the final round and through all the above we are $200,000 away from a beautiful, cash-flowing building. We aren't going to fail and we aren't going to give up.
We know many people are affected in their own ways through the state of the present day economy & hope this story provides insight into the life of a developer. Suffice to say it's not for the faint of heart. We'd like to open up the dialogue for anyone in a similar position or interested in learning more about what we do.
The Columbia Philly...STILL COMING SOON.
