Enron Mail

To:lay.vittor@enron.com, robyn.vermeil@enron.com, mark.lay@enron.com,kenneth.lay@enron.com, david.herrold@enron.com
Subject:Real Estate Investment - Shawn Gross
Cc:lay@enron.com, mrslinda@lplpi.com
Bcc:lay@enron.com, mrslinda@lplpi.com
Date:Tue, 22 May 2001 16:11:11 -0700 (PDT)

I wanted to inform you of an investment opportunity with Shawn Gross. =20
He planning on developing a 2.5-acre tract at the corner of Kirby & Braesw=
ood. This location as you know is close to the medical center area and su=
rrounded quality old neighborhoods. Two apartments in the area have been =
very successful. The Providence across the street is getting rental rates=
in the $1.22 per square foot and Kirby Place, an older apartment complex, =
is getting $1.13 per square foot.
The preliminary plan is to develop three or four story structures with a t=
otal of approximately 110 or 150 units, respectively. The total project c=
ost are projected to be $8.1 million or $10.9 million. Capital required f=
or this development is between $1.6 million (for the three story developme=
nt) and $2.2 million (for the four story development). An additional call=
later on during development could be around $200,000 due to increasing co=
sts (i.e, increase in lumber prices). The property would probably be comp=
leted 18 months out. Projected IRRs are between 20% to 28% depending on t=
he sale of the property. Return on Cash Invested starts at approximately =
11% in 2002 and increases steadily up 20% around 2006. Assumptions are: $=
1.22 per square foot rents; revenues & expenditures rising 3.5%; vacancy l=
oss of 5%; Cap Rate of 8.5%; total project cost between $8.1 million and $=
10.9 million, depending on three or four stories. There is an issue with =
the property being in the 100-Year Floodplain, but he is proposing to alle=
viate the problem by creating a water feature on the property and raise the=
grade of builderable area above the Floodplane.
I spoke to Jenard about the project before I've been able to discuss it fu=
rther with Shawn. I asked him about some of the assumptions, such as the =
rental rates and cap rates which I thought where a bit aggressive. He tol=
d me to the contrary, that Shawn's other project is pulling in similar rat=
es, as well as other non-Shawn projects. With regards to the cap rate, he=
said that he has been seeing 8%, which would call for a greater sales pri=
ce than the assumed 8.5% (I can discuss this in further detail for anyone =
who doesn't understand cap rates). Jenard is investing 15% of the capital=
required as a limited partner (same terms as the rest of the partners) an=
d Shawn is investing 5% (4% as a limited partner, 1% as GP). Shawn will b=
e the developer, JMG Builders will be doing the construction, and JMG Mana=
gers, Ltd. will be managing the property. In otherwords, Dad will have hi=
s construction company and management company doing the project. Shawn wi=
ll be the developer. While the property is under operation there should b=
e distributions (not treated as capital returned). At the time of sale, m=
ortgage refinance, or other capital event, after all debts have been repai=
d, all of the partners will get their capital contribution back. Then, pr=
ofits are distributed. I can go through the partnership structure for tho=
se who are interested, which includes distributions and fees. =20
I am considering investing in 1% to 2% of the deal. A 1% percent investme=
nt amounts to either $16,000 or $22,000 invested, depending on the three o=
r four story scenario, plus the possible additonal cash call of $2,000. T=
here are several risks (i.e., softening of rental rates) which dooesn't mak=
e the returns a guarantee. However, I feel good about the Houston econom=
y and absorption rates in the residental (and commercial) markets for Hous=
ton. Feedback from Jenard regarding his developments in Houston and Steve=
Keller's South Rice Apartment development have all been extremely positiv=
e. Shawn's personal developments include: one in Houston completed and d=
oing great; the other Houston project never got developed because someone=
offered him so much money on the land, he and his partners had to take it=
(not a bad problem considering it took the risk out of developing and ret=
urned an enormous IRR to the investors). Although he has not developed mu=
ch, his father is an investor and will have some involvement. Money inves=
ted would be tied-up for at least two years (unless something happens like=
his last project), but up until a sale which could take between 2 to 5 ye=
ars (or longer) there could be distributions. That assumes that the proje=
ct is doing well.
Anyway, please let me know if any of you are interested. The deal is sche=
duled to fund June 10. Like I said, I have not heard from him on all the =
specifics. Therefore, I don't know at this time how much is of the deal i=
s even available. I would be glad to discuss this in greater detail with =
any of you that are interested.
- Beau