Item 2. Acquisition or Disposition of Assets
HAMPTON POINTE APARTMENTS
Charleston, South Carolina
On March 31, 1998, Cornerstone Realty Income Trust, Inc. (together with its
subsidiary, CRIT-NC, LLC, the "Company") purchased the Hampton Pointe
Apartments, a 304-unit apartment complex having an address of 1916 Sam
Rittenberg Boulevard, Charleston, South Carolina (the "Property").
The seller, Hampton Pointe Properties, was affiliated with the Company. The
purchase price was $12,225,000. At closing, the entire purchase price was
borrowed under the Company's 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 Charleston Chamber of Commerce.
The Charleston Metropolitan Statistical Area ("MSA") is comprised of
Charleston, Berkeley and Dorchester Counties. The approximate population of the
MSA is 570,000. Charleston County has approximately 330,000 residents,
approximately 85,000 of which are in the city limits.
The principal economic factors in the region are distribution and port
facilities, tourism, medical services and the military.
The Port of Charleston is the leading container cargo port in the southeast
and on the entire east coast ranks second only to the combined ports of New York
and New Jersey. BMW and NUCOR are two recent examples of companies that rely on
the Port of Charleston.
Tourism is a major factor in the area, with approximately five million
visitors annually. Tourist attractions include the historic district of
Charleston, beaches, golf courses, and restaurants. It is estimated that the
total economic impact of the tourist industry in the region is approximately
$1.5 billion annually, accounting for approximately 34,000 jobs and
approximately 14% of the total work force.
Charleston is the home to the Medical University of South Carolina, which
accounts for approximately 7,500 jobs. A total of approximately 16,000 persons
are employed in the region's 10 hospitals and medical facilities.
The United States Navy employs approximately 7,800 people in the region in
installations such as Charleston Naval Weapons Station, Naval Hospital and Naval
Command, Control and Ocean Surveillance Center in Service Engineering, East
Coast Division. In addition, the Charleston Air Force Base employs over 5,400
people. From 1989 to 1996, naval employment in the region dropped from 21% to 3%
of total jobs. However, the region experienced a concurrent increase in jobs in
other sectors.
The overall unemployment rate in the region is currently approximately 5%.
The Property is listed in the West Ashley region of Charleston. The
immediate area consists of other multi-family housing, commercial and retail
development and single-family housing. The Property is located near major
shopping centers, schools and churches and is accessible from Interstate 26 and
Mark Clark Expressway. Charleston's largest mall, the Citadel Mall, is located
less than one mile from the Property and has four major anchor stores and
approximately one million square feet of space. The Property is an approximately
15-minute drive from the College of Charleston, downtown Charleston, the airport
and the beach.
DESCRIPTION OF THE PROPERTY. The Property consists of 304 garden-style
apartments located in 19 two-story buildings on approximately 20 acres of land.
The Property was constructed in 1986.
The Company believes that the Property has generally been well maintained
and is generally in good condition. However, the Company has budgeted
approximately $912,000 for repairs and improvements including clubhouse
renovation, re-siding of all building exteriors and window replacement.
The Property offers four different unit types. The unit mix and rents being
charged new tenants as of June 1998 are as follows:
APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- ---------- ----------------------------- ---------------- --------
64 One bedroom, one bathroom 750 $510
64 One bedroom, one bathroom 900 560
2
APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- ---------- ----------------------------- ---------------- --------
88 Two bedrooms, two bathrooms 1,175 650
88 Two bedrooms, two bathrooms 1,200 675
The apartments provide a combined total of approximately 314,000 square
feet of net rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally remained constant or increased. As
an example, a two-bedroom, two-bathroom apartment (1,175 square feet) rented for
$585 in 1993, $585 in 1994, $585 in 1995, $600 in 1996, and $650 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996 and 1997 was $6.39, $6.39, $6.39, $6.55, and $7.10, respectively.
The buildings are wood frame construction on concrete slabs. The buildings
have pitched roofs with asphalt shingles. Exteriors are cedar lap siding.
The Property has two outdoor swimming pools, a Jacuzzi, two lighted tennis
courts, a sand volleyball court, a fitness center, a putting green, picnic
areas, a car wash area with vacuum, and a laundry facility. The Property also
has a large clubhouse with an entertainment area, kitchenette and leasing
office. There is ample paved parking.
Apartments units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and baths, as well as cable television hook-ups and
individually controlled heating and air conditioning units. Each unit has
miniblinds, walk-in closets, full-sized washer/dryer connections, a wood-burning
fireplace and a sun room or patio. 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 pay for their electricity usage, which includes air conditioning,
cooking and lights, and for gas usage, which includes heat and hot water.
There are at least six apartment properties in the area that compete with
the Property. All offer similar amenities and generally have rents that are
comparable to those of the
3
Property. Based on a recent telephone survey, the Company estimates that
occupancy in nearby competing projects averaged approximately 96% at May 31,
1998. One of the competing properties, Westchase Apartments, is also owned by
the Company.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 72% in 1993, 73% in 1994, 85% in 1995, 95% in
1996 and 98% in 1997. On May 31, 1998, the Property was 98% occupied. The
tenants are a mix of white-collar and blue-collar workers, students and retired
persons.
The 1997 real estate taxes applicable to the Property were calculated as
assessed value times 6% times $0.3181, plus a solid waste tax of $63 per
apartment unit. The real estate taxes for 1997 were calculated to be $158,576.
The assessed value was $8,699,800. The basis of the depreciable residential real
property portion of the Property (currently estimated at about $10,973,281) 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.
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 Charleston, South Carolina area will
experience continued strong economic development and steady population increase,
owing to a strong, diversified economy characterized by at least four major
employment factors (port facilities, tourism, medical facilities and the
military), and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in good condition.
3. The Property is conveniently located and proximate to area employers
and shopping.
4. The Company is familiar with the Charleston, South Carolina market.
4
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.
PINNACLE RIDGE (formerly Edgewood Knoll) APARTMENTS
Asheville, North Carolina
On March 31, 1998, the Company purchased the Edgewood Knoll Apartments,
a 168-unit apartment complex having an address of 600 Merrimon Avenue,
Asheville, North Carolina (the "Property"). The Company purchased the Property
from a seller (R.B.R. & S.T., a North Carolina limited partnership) which was
unaffiliated with the Company. The purchase price was $5,750,000, all of which
was borrowed on an interim basis under the Company's unsecured line of credit.
Title to the Property was conveyed to the Company by limited warranty deed. The
Company has changed the name of the Property to "Pinnacle Ridge Apartments."
LOCATION. The following information is based in part upon information
provided by the Asheville Chamber of Commerce.
The Property is located in North Carolina, in the City of Asheville and
Buncombe County, which collectively have a population of approximately 250,000.
Asheville is located approximately 115 miles from Charlotte, North Carolina, and
65 miles from Greenville, South Carolina.
The City of Asheville and Buncombe County are represented by a number
of nationally recognized companies and organizations in the health care,
education and manufacturing sectors. Some of the major employers in the area
include Champion International (a manufacturer of paper and paperboard), GE
Lighting Systems, Westinghouse Electric and ITT Automotive. In addition,
Memorial Mission Hospital and St. Joseph Hospital are major area employers.
The major highways serving the area are Interstates 40, 26 and 240. The
Asheville Regional Airport is centrally located within the metropolitan area and
is approximately 20 miles from the Property. Also, Asheville is home to the
University of North Carolina at Asheville, with an enrollment of approximately
3,200 students.
The property is located on Merrimon Avenue, in the north section of
Asheville, within the city limits. The area
5
surrounding the Property is well-developed, with various retail centers as well
as single-family residences. The Property is located approximately two miles
from the city's central business district, and is convenient to employment
centers, shops and restaurants located there. The Property is also near two
major shopping centers, Asheville Mall and Biltmore Square Mall.
DESCRIPTION OF THE PROPERTY. The Property consists of 168 garden-style
and townhouse-style apartments in 25 two-story buildings and one two-story house
located on approximately 17 acres of land. The Property was constructed in 1951.
The Company believes that the Property is generally in good condition.
However, approximately $336,000 has been budgeted by the Company for repairs and
improvements, including construction of an outdoor swimming pool, conversion of
the two-story Victorian house on site (which currently contains two apartment
units) into a clubhouse, exterior painting and siding replacement, landscaping
and interior upgrades.
The Property offers six unit types. The unit mix and rents currently
being charged new tenants as of June 1998 are as follows:
APPROXIMATE INTERIOR MONTHLY
QUANTITY* TYPE SQUARE FOOTAGE RENTAL
- ----------- ----------------------------------- ---------------------- --------
8 One bedroom, one bathroom 760 $500
4 One bedroom, one bathroom (TH) 760 515
62 Two bedrooms, one bathroom 816 540
74 Two bedrooms, one bathroom (TH) 912 550
12 Three bedrooms, one bathroom (TH) 1,038 615
6 Three bedrooms, two bathrooms 1,200 630
* At the time of purchase by the Company, the Property included a
two-story house with two apartment units. As indicated above, the
Company expects to convert the two-story house into a clubhouse, and
these two apartment units will cease to exist.
6
The apartments provide a combined total of approximately 147,000 square
feet of net rentable area
Currently, the Property does not have standard common-area amenities,
although, as noted above, the Company plans to construct a swimming pool at the
Property and to convert an existing two-story house into a clubhouse and amenity
center.
Leases at the Property generally are for terms of one year or less.
Average rental rates for the past five years have generally been constant or
increasing. As an example, a two-bedroom, one-bathroom apartment unit (816
square feet) rented for $350 in 1993, $375 in 1994, $375 in 1995, $375 in 1996,
and $480 in 1997. The average effective annual rental per square foot at the
Property for 1993, 1994, 1995, 1996, and 1997 was $4.84, $5.18, $5.18, $5.18,
and $6.63, respectively.
The buildings are wood frame construction over crawl spaces. Exteriors
have brick veneer and a combination of painted hardboard lap siding, painted
cementitious-type siding and painted T-111 siding. There are sloped gabled roofs
covered with asphalt shingles.
All apartment units have hardwood floors in the living areas, and tile
floors in the kitchen and baths. Each apartment unit has a cable television
hook-up and an individually controlled heating and air conditioning unit. Each
apartment unit also has miniblinds and full-sized 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 pay for their gas usage, which
includes heat (in all units) and hot water in garden units, and for their
electricity usage, which includes air-conditioning, cooking, lights and hot
water in townhouse units.
There are at least three apartment properties in the area that compete
with the Property. All offer similar amenities and have rents that are generally
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing projects averaged
approximately 91% at May 31, 1998.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 90% in 1993, 90% in 1994, 75% in 1995, 70%
in 1996, and 80% in 1997. On May 31, 1998, the Property was 90% occupied. The
current residents at the Property are employed in a variety of white-collar and
blue-
7
collar jobs, and there are also student residents and retired persons.
The 1997 real estate tax rate applicable to the Property was $1.51 per $100
of assessed value, and the real estate taxes for 1997 were calculated to be
$44,208. The assessed value was $2,927,700. The basis of the depreciable
residential real property portion of the Property (currently estimated at about
$4,187,566) 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 Asheville, North Carolina area
will enjoy continued 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.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
4. The Company is familiar with the Asheville, North Carolina
rental market.
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.
8