Item 2. Acquisition or Disposition of Assets
STONE POINT (formerly Sterling Point)APARTMENTS
Charlotte, North Carolina
On January 15, 1998, Cornerstone Realty Income Trust, Inc. (the "Company")
purchased the Sterling Point Apartments (the "Property"), consisting of 192
apartment units located at 10900 Point South Drive, Charlotte, North Carolina.
The Company has renamed the Property the "Stone Point Apartments."
The seller, Sterling Apartments, LLC, was unaffiliated with the Company.
The purchase price was $9,700,000, which was paid in its entirety with funds
borrowed by the Company under its unsecured line of credit. Title to the
Property was conveyed to the Company by limited warranty deed.
LOCATION. The following information is based in part upon information
provided by the Charlotte Chamber of Commerce.
Based in part upon its fast rate of growth and a diversified economy,
Charlotte has in recent years come to national attention as an attractive
location for business and residential growth. According to the August 1995, Site
Selection magazine, Charlotte's corporate popularity ranked second nationally
only to Dallas during the period between 1990 and 1994, being the site of 474
significant new and expanded facilities.
Charlotte has developed into a major financial, distribution and
transportation center, with a metropolitan population of approximately 1.3
million and a population of approximately 5.6 million within a 100-mile radius.
Charlotte's growth is also attributable to its favorable year-round climate, a
moderate cost of living, excellent quality of life, educated work force,
pro-business political climate, extensive transportation network, and strategic
geographic location.
According to the Charlotte Chamber of Commerce, during the first six months
of 1995, approximately 530 firms announced new or expanded businesses which will
provide approximately 6,200 new jobs in the area. Charlotte is home to major
offices of more than 225 of the Fortune 500 industrial firms and approximately
300 of the Fortune 500 service firms.
Charlotte is the leading financial center of the Southeast, serving as
corporate headquarters to NationsBank and First Union. The growth of Charlotte's
banking and financial communities has had a positive effect on the growth of its
supporting industries,
such as insurance, accounting, legal services, and real estate. Another recent
aspect of Charlotte's development is as the location of professional basketball
and football franchises known as the Charlotte Hornets and the Carolina
Panthers, respectively.
The city of Charlotte is located near the border of North Carolina and
South Carolina within Mecklenburg County. It is located at the intersection of
Interstates 77 and 85, the major north/south and east/west thoroughfares in the
region, which provide convenient access to all other regional areas.
The Property is located in Mecklenburg County, in the southwestern portion
of the Charlotte metropolitan area. The Property is located at the intersection
of Carowinds Boulevard and State Highway 49. The immediate area surrounding the
Property consists of other multi-family and single-family housing, commercial
development and retail development. The Property is an approximately ten-minute
drive to Lake Wylie. The Property is an approximately five-minute drive from
Interstates 77 and 485. The Charlotte central business district is an
approximately 25-minute drive from the Property and Charlotte/Douglas
International Airport is an approximately 15-minute drive from the Property via
Interstate 77.
DESCRIPTION OF THE PROPERTY. The Property was built in 1986 and comprises
192 garden-style apartments in 16 two-story buildings on approximately 20 acres
of land. The Property offers three unit types. The unit mix and rents currently
being charged to new tenants are as follows.
APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
64 One bedroom, one 715 $560
bathroom
64 Two bedrooms, two 832 645
bathrooms
64 Two bedrooms, two 997 675
bathrooms
The units at the Property provide for a combined total of approximately
163,000 square feet of net rentable area.
The Property has an outdoor swimming pool, two tennis courts, a
playground, a fitness center, laundry facilities and a business center. The
Property has a clubhouse which includes an
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entertainment area, kitchenette, conference room and leasing office. There is
ample paved parking for tenants.
The Company believes that the Property has generally been well maintained
and is in good condition. According to the seller, the seller expended
approximately $260,000 in capital improvements beginning in January 1996. The
improvements included construction of an addition to the clubhouse housing a
fitness center, a new laundry facility, exterior painting, installation of the
playground, carpet replacement in approximately 60% of the apartment units,
vinyl floor replacement in approximately 50% of the apartment units, and new
light fixtures and mirrors in some of the apartment units. The Company has
budgeted $96,000 for additional renovations and improvements. These improvements
are expected to include redecoration of the clubhouse, exterior painting with
wood replacement as necessary, and new signs for the Property.
Leases at the Property are for terms of one year or less. Generally, rental
rates for the past five years have increased. As an example, a two-bedroom,
two-bathroom (997 square feet) apartment rented for $520 in 1993, $530 in 1994,
$550 in 1995, $603 in 1996 and $620 in 1997. The average effective annual rental
per square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.84,
$6.97, $7.23, $7.93, and $8.15, respectively.
The buildings are wood-frame construction on concrete slabs with pitched
roofs covered with asphalt shingles. The exteriors are masonite hardboard
siding.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air conditioning unit. Each
apartment unit includes miniblinds, exterior storage, a wrap-around porch,
walk-in closets and washer/dryer connections. Each kitchen is equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
The owner of the Property supplies cold water, sewer service and trash removal.
The tenants are responsible for electricity, which includes heating, air
conditioning, hot water, cooking and lights.
There are at least five apartment properties in the area that compete with
the Property. The other properties that will compete with the Property offer
similar amenities and generally have rents that are comparable to those of the
Property. Based on a recent telephone survey, the Company estimates that
occupancy in nearby competing projects now averages approximately 93%.
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According to information provided by the seller, physical occupancy at the
Property averaged approximately 99% in 1993, 99% in 1994, 99% in 1995, 94% in
1996 and 96% in 1997. On January 6, 1998, the Property was 95% occupied. The
tenants of the Property are a mix of blue-collar and white-collar workers and
retired persons.
The following table sets forth 1997 real estate tax information for the
Property.
ASSET VALUE TAX TAX
RATE
Land $856,830.00 $1.2550 $10,753.22
Buildings 5,997,320.00 1.2550 75,266.37
Other features 76,060.00 1.2550 954.55
------------- ----------
Total $6,930,210.00 $86,974.14
============= ==========
Solid Waste Fee: $6,369.00
TOTAL TAX: $93,343.14
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The basis of the depreciable residential real property portion of the
Property (currently estimated at about 6,073,380) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Charlotte, North Carolina area will
experience continued strong economic development and steady population increase,
and that such development and increase will support stable occupancy rates and
reasonable increases in rents at the Property.
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2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in generally sound condition. In addition, the
Company believes that the completion of its planned capital improvements will
permit additional increases in rental rates.
3. The Property is conveniently located and proximate to major employers
and shopping.
4. The Company is very familiar with the Charlotte rental market. The
Company already owns other apartment complexes in the Charlotte area, which may
provide certain economies and efficiency in operation.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
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