Prepared For: Mr. Forrest E. Cotten, AICP City of Auburn, Alabama 144 Tichenour Avenue Auburn, Alabama Project Number D1882KDMB May 14, 2015 Danter Company, LLC National Leaders in Real Estate Research 2760 Airport Drive | Suite 135 Columbus, OH 43219 614.221.9096 http://www.danter.com TABLE OF CONTENTS I. INTRODUCTION ....................................................................................................... I-1 A. OBJECTIVES .................................................................................................... I-1 B. METHODOLOGY .............................................................................................. I-1 C. DATA ANALYSIS .............................................................................................. I-2 D. USES AND APPLICATIONS ............................................................................. I-2 II. SCOPE OF SURVEY ............................................................................................... II-1 III. CONCLUSIONS.................................................................................................... III-1 A. INTRODUCTION ............................................................................................ III-1 SITE EFFECTIVE MARKET AREA MAP ................................................... III-4 B. PURPOSE-BUILT DEVELOPMENT POTENTIAL .......................................... III-5 C. CONVENTIONAL APARTMENT DEVELOPMENT POTENTIAL ................... III-8 D. UNIVERSITY PROFILE ................................................................................ III-45 E. EMA RENTAL BASE .................................................................................... III-48 F. EMA DEMOGRAPHIC FACTORS ................................................................ III-52 IV. FIELD SURVEY OF MODERN APARTMENTS ................................................... IV-1 PURPOSE-BUILT STUDENT HOUSING ....................................................... IV-2 NON PURPOSE-BUILT HOUSING ................................................................ IV-8 V. MODERN APARTMENT LOCATIONS AND PHOTOGRAPHS ............................. V-1 APARTMENT LOCATIONS REFERENCE MAP ............................................. V-2 APARTMENT LOCATIONS MAP A ................................................................ V-3 APARTMENT LOCATIONS MAP B ................................................................ V-4 APARTMENT LOCATIONS MAP C ................................................................ V-5 SELECTED APARTMENT PHOTOGRAPHS ................................................. V-6 ii VI. AREA ECONOMY ................................................................................................ VI-1 A. EMPLOYMENT CONDITIONS ..................................................................... VI-1 B. HOUSING STARTS ...................................................................................... VI-5 DEMOGRAPHICS GLOSSARY ................................................................................................................. G-1 QUALIFICATIONS AND SERVICES ........................................................................... Q-1 iii I. INTRODUCTION A. OBJECTIVES This study analyzes the feasibility of developing a student-oriented apartment project in Auburn, Alabama. After fully discussing the scope and area of survey with Mr. Forrest Cotten of the City of Auburn, the Danter Company, LLC undertook the analysis. B. METHODOLOGY The methodology we use in our studies is centered on three analytical techniques: the Effective Market Area (EMA)SM principle, a l00% data base, and the application of data generated from supplemental proprietary research. The Effective Market Area (EMA) Principle—The EMA principle is a concept developed by the Danter Company, LLC to delineate the support that can be expected for a proposed development. An EMA is the smallest specific geographic area that will generate the most support for that development. This methodology has significant advantages in that it considers existing natural and manmade boundaries and socioeconomic conditions. For student housing assignments, market-rate apartments are surveyed and the percentage of student occupants is established. The EMA is expanded until a significant drop-off in student support is noted. Survey Data Base—Our surveys employ a l00% data base. In the course of a study, our field analysts survey not only the developments within a given range of price, amenities, or facilities, but all modern developments within the EMA. Proprietary Research—In addition to site-specific analyses, Danter Company, LLC conducts a number of ongoing studies, the results of which are used as support data for our conclusions. Danter Company, LLC maintains a l00% data base of more than 1,500 communities, with each development cross-analyzed by rents, unit and project amenities, occupancy levels, rate of absorption, and rent/value relationships. SM Service mark of Danter Company, LLC I-1 C. DATA ANALYSIS This study represents a compilation of data gathered from various sources, including the properties surveyed, local records, and interviews with local officials, real estate professionals, and major employers, as well as secondary demographic material. Although we judge these sources to be reliable, it is impossible to authenticate all data. The analyst does not guarantee the data and assumes no liability for any errors in fact, analysis, or judgment. The secondary data used in this study are the most recent available at the time of the report preparation. In Section VI—Field Survey, we have attempted to survey l00% of all units. Since this is not always possible, we have also compared the number of units surveyed with the number of multifamily housing starts to establish acceptable levels of representation. All developments included in the study are personally inspected by a field analyst directly employed by the Danter Company, LLC. The objective of this report is to gather, analyze, and present as many market components as reasonably possible within the time constraints agreed upon. The conclusions contained in this report are based on the best judgments of the analysts; we make no guarantees or assurances that the projections or conclusions will be realized as stated. It is our function to provide our best effort in data aggregation, and to express opinions based on our evaluation. D. USES AND APPLICATIONS Although this report represents the best available attempt to identify the current market status and future market trends, note that most markets are continually affected by demographic, economic, and developmental changes. Further, this analysis has been conducted with respect to a particular client's development objectives, and consequently has been developed to determine the current market's ability to support those particular objectives. For these reasons, the conclusions and recommendations in this study are applicable only to the proposed site identified herein, and only for the potential uses for that site as described to us by our client. Use of the conclusions and recommendations in this study by any other party or for any other purpose compromises our analysis and is strictly prohibited, unless otherwise specified in writing by the Danter Company, LLC. I-2 II. SCOPE OF SURVEY A complete analysis of a rental market for students requires the following considerations: a field survey of modern apartments; an analysis of area housing; profile data; an analysis of the area economy; a demographic analysis; and recommendations for development. Field Survey—Our survey of modern apartments includes a cross-analysis of vacancies by rents, a survey of unit and project amenities, and a rent/value analysis. Area Housing Analysis—We have conducted an analysis of housing demand that includes a study of support by both growth and internal mobility. Further, we have analyzed existing housing using the most recent census material. Profile Data—Danter Company, LLC has conducted case studies of student-oriented housing projects at universities and colleges throughout the country. This information, which included questions regarding unit size and features, project amenities, roommate preferences, rent, student profiles, and residing characteristics, is incorporated into the analysis and report. University Profile—Danter Company, LLC conducted interviews with university officials and reviewed student demographic information while completing a university profile. The profile includes general information, housing characteristics, enrollment, a profile of the student body, tuition and fees, available transportation, and review of area attractions. Economic Analysis—Major employers, utilities, banks, savings and loans, and media that serve the area are listed in the study. The information gathered has been used to create a Community Services map showing school, shopping, and employment areas in relation to the proposed site. Demographic Analysis—The study includes an analysis of demographic characteristics of the student population and identifies any trends that may impact the development of student housing at the subject site. Enrollment trends have also been evaluated. Key Interviews—Interviews regarding the perception of housing, recent development trends, planned and proposed developments and local conditions were conducted with city and county officials, area property owners and developers, major employers and human resource directors, major institutions such as schools and hospitals and real estate professionals. II-1 III. CONCLUSIONS A. INTRODUCTION This report is an update of our original study conducted in March 2013 (field survey of apartments conducted in November 2012) in which we identified the existing and future student rental housing market conditions in Auburn, Alabama. Specifically, we evaluated the private development potential for student housing, as well as the potential for conventional apartments. This report will evaluate changes in the market since the original study and their impact on our original assessment. Our conclusions will be based on a field survey of student housing alternatives, demographic/economic characteristics of the student population and previous studies conducted by Danter Company, LLC (The Danter Company has conducted numerous assignments in Auburn in addition to the previously mentioned study). These will include an in-depth analysis of the student housing market, amenities, rent levels, and absorption periods. Of primary consideration will be an assessment of the long-term student housing market and the capacity of that market to support the existing housing base. Future market conditions will be evaluated within the context of the existing housing base, social trends of student expectations, university plans and policies, and the investor/developer environment. The primary objective of this report will be to provide market expectations to support future planning decisions regarding student housing development in Auburn. The scope also includes an analysis of the non-student component of the rental market. EMA refers to a methodology developed by the Danter Company, LLC to describe areas of similar economic and demographic characteristics. EMAs are bounded by both "hard" and "soft" boundaries. Hard boundaries are marked by rivers, freeways, railroad rights of way, and other physical boundaries. Soft boundaries are changes in the socioeconomic makeup of neighborhoods. The EMA is also defined by properties having a high percentage of student occupants. The Auburn Site Effective Market Area includes Auburn and surrounding areas. Specifically, the EMA is bounded by Saugahatchee Creek to the north, Hamilton Road to the east, Ogletree Road and Shell Toomer Parkway to the south, and Cox Road and Chadwick Lane to the west. Based on the characteristics of the Site EMA, a field survey of existing rental housing development of the Site EMA, and a student enrollment and demographic analysis of the subject school, support levels can be established for existing and future rental development. III-1 The following analyses have been conducted: (cid:120) Analysis of the overall EMA student rental housing market (cid:120) Historical housing trends (cid:120) Enrollment trends of Auburn University (cid:120) Current market conditions based on 100% field survey of modern apartments (cid:120) Appropriateness of existing and future student housing locations (cid:120) Current and expected economic and household growth conditions (cid:120) Area apartment demand factors, including (cid:120) Local, regional, and national trends in student housing (cid:120) Support from existing multifamily renters (step-up/down support) (cid:120) A trend line analysis, based on a "rent by comparability index" evaluation of all conventional developments within the EMA. Most of the apartment projects in the EMA have tenant-paid electric, cable TV, and Internet. The landlord is generally responsible for water, sewer, and trash collection. Among purpose-built student apartment properties, however, the landlord typically pays all utilities but electricity. It should be noted that a more recent trend in most markets is for all-inclusive units with the landlord paying all utilities (with a cap on electricity use). MARKET-RATE PURPOSE-BUILT PROJECTS PROJECTS TENANT LANDLORD TENANT LANDLORD Electric Heat 43 1 13 3 Gas Heat 3 0 1 0 Cable TV 40 7 5 12 Internet 39 6 4 13 Water/Sewer 16 31 6 11 Trash 6 41 3 14 III-2 Rents as shown in the field survey of this report for market-rate properties (including purpose-built apartment communities) have been adjusted, where necessary, to reflect tenant-paid electricity and all other utilities paid by the landlord. The term “purpose-built student housing” is used throughout this report and refers to privately constructed, owned, and managed multifamily developments leased by-the- bed. They differ from conventional apartments in that tenants renting by the bedroom are not jointly liable for the entire rent. They may also differ from conventional apartments in that purpose-built developments are generally, but not always, furnished. Developers often provide roommate matching services. During the course of this assignment, staff of The Danter Company visited every purpose-built and conventional apartment property in the Auburn EMA. Managers and/or owners were interviewed to determine how each property was performing and their perception of the overall market. These interviews will be summarized elsewhere in the report. We also took care to let every respondent know that their specific project information would remain confidential. Data in this report will be provided only in aggregate without identifying individual properties. Similarly, we surveyed numerous local officials, real estate professionals, university staff and officials, local businesses and merchants and local lenders, many of which requested not to be quoted directly. Our summary of these interviews will also be presented without specific attribution. III-3 SITE EFFECTIVE MARKET AREA MAP AUBURN, ALABAMA III-4