Montgomery Lending

Adaptive Reuse Feasibility Report (Example)

Unlock the Potential of Underutilized Commercial Properties

South Bend Adaptive Reuse Feasibility Report

Club Fever to Multifamily Conversion

Date: 05/10/25

📅 Project Milestones & Timeline

Phase 1: Property Acquisition & Due Diligence (Months 1-3)

  • 📌 Complete property inspection and structural assessment
  • 📌 Finalize purchase agreement for 222 S Michigan St ($800K target)
  • 📌 Complete environmental assessment and identify remediation needs
  • 📌 Consult with South Bend Historic Preservation Commission (574-235-9371)
  • 📌 Secure $3M bridge loan with FMC Lending (10.5%, 18 months, interest-only)

Phase 2: Design & Permitting (Months 4-7)

  • 📌 Finalize architectural plans for 50-unit layout (30 studios, 20 one-bedrooms)
  • 📌 Submit historic review application for exterior modifications
  • 📌 Secure building permits with South Bend Building Department
  • 📌 Obtain UEZ credit approval ($100K over 5 years)
  • 📌 Finalize amenity plans for 15,960 SF basement (gym, storage, co-working)

Phase 3: Construction & Renovation (Months 8-18)

  • 📌 Complete structural reinforcement work ($500K)
  • 📌 Install new HVAC, plumbing, and electrical systems ($1.5M-$2M)
  • 📌 Complete interior unit builds (studio and one-bedroom layouts)
  • 📌 Install modern finishes and energy-efficient windows ($1.5M-$1.8M)
  • 📌 Complete basement amenity spaces and rooftop deck ($300K)

Phase 4: Pre-Leasing & Marketing (Months 16-21)

  • 📌 Develop marketing materials highlighting proximity to Notre Dame, Amazon, GM/Samsung
  • 📌 Launch website and social media campaign targeting young professionals
  • 📌 Begin pre-leasing activities (target 30% occupancy before completion)
  • 📌 Host open house events for local employers and Notre Dame housing office
  • 📌 Establish property management relationship with Cressy & Everett (574-271-3440)

Phase 5: Building Launch & Stabilization (Months 19-24)

  • 📌 Obtain certificate of occupancy
  • 📌 Complete move-ins for pre-leased units
  • 📌 Achieve 60% occupancy
  • 📌 Implement tenant retention program
  • 📌 Reach 85% occupancy threshold

Phase 6: Financial Optimization & Refinancing (Months 25-36)

  • 📌 Achieve 95% occupancy target for standard scenario
  • 📌 Optimize rental rates to $1,200-$1,350 per unit
  • 📌 Refinance with permanent loan ($3.56M through New American Funding)
  • 📌 Implement operational efficiencies to reach 38-40% expense ratio
  • 📌 Evaluate hold vs. sell strategy based on market conditions

💲 Market & Financial Analysis

  • 📌 Property: 222 S Michigan St, South Bend, IN 46601
  • 📌 Building Size: 31,920 SF (three floors) + 15,960 SF basement
  • 📌 Unit Mix: 50 units total (▫️30 studios @ 500-600 SF, ▫️20 one-bedrooms @ 700-800 SF)
  • 📌 Target Rents: ▫️Studios: $1,000-$1,200/month, ▫️One Bedroom: $1,300-$1,500/month
  • 📌 Total Investment: $5.13M-$6.09M (average $5.61M)

💳 Financing Structure

  • ▫️ Bridge Loan: $3M (55% LTC, 10.5% interest, 18 months)
  • ▫️ Permanent Loan: $3.56M (65% LTV, 6.25%, 30-year amortization)
  • ▫️ Equity Required: $2.61M (reduced to $2.46M with incentives)
  • ▫️ Annual Debt Service: $284K (1.25x DSCR with $410K NOI)

⚡ Risk Assessment & Mitigation

⓵ Historic Review Process

  • ⚠️ Risk: 30-60 day delay for exterior modifications
  • ✅ Mitigation: Early engagement with Historic Preservation Commission, $10K budget allocation

⓶ Construction Cost Overruns

  • ⚠️ Risk: $120/SF vs. $150/SF renovation costs
  • ✅ Mitigation: 10% contingency ($500K), phased approvals

⓷ Lease-Up Delays

  • ⚠️ Risk: Below 95% occupancy target
  • ✅ Mitigation: Pre-leasing strategy, partnerships with Notre Dame, Amazon, GM/Samsung

⓸ Financing Constraints

  • ⚠️ Risk: Developer's 600 FICO score
  • ✅ Mitigation: FMC Lending bridge loan (no FICO minimum), 🌍Opportunity Zone investor attraction

Opportunities

⓵ Market Demand:

  • 43% renter occupancy in South Bend
  • 10% YoY rent growth, $1,272 average monthly rent
  • 2,500-unit affordable housing shortage

⓶ Economic Drivers:

  • Amazon data center ($11B, 1,000 jobs)
  • GM/Samsung EV battery plant ($3.5B, 1,600 jobs)
  • University of Notre Dame (5 miles, 15,000 students/faculty)

⓷ Incentive Programs:

  • Urban Enterprise Zone credits ($100K)
  • Opportunity Zone tax benefits (10-15% equity reduction)
  • Sewer reimbursement program ($50K)

🔑 Critical Path Items

  • ▫️ Historic review approval (Month 5)
  • ▫️ Structural reinforcement completion (Month 10)
  • ▫️ Mechanical systems installation (Month 14)
  • ▫️ Pre-leasing 30% threshold (Month 18)
  • ▫️ Certificate of occupancy (Month 19)
  • ▫️ 95% occupancy achievement (Month 30)
  • ▫️ Permanent financing placement (Month 36)

📊 Key Performance Indicators

  • ▫️ Construction: Cost per square foot vs. $120-$150 target
  • ▫️ Leasing: Units leased per month vs. 5-unit target
  • ▫️ Financial: Actual NOI vs. $410K-$482K projection
  • ▫️ Operational: Expense ratio vs. 38-40% target
  • ▫️ Valuation: Exit cap rate vs. 6.75-7.5% projection

Next Steps

  • ⓵ Schedule property tour with owner Dee Davis
  • ⓶ Engage structural engineer for detailed assessment
  • ⓷ Initiate discussions with FMC Lending for bridge loan
  • ⓸ Contact South Bend Historic Preservation Commission
  • ⓹ Consult with Cressy & Everett regarding property management
  • ⓺ Prepare capital raise documentation for Opportunity Zone investors
  • ⓻ Submit initial architectural plans for city review

☎️ Project Contact Information

Explanation of Metrics


Total Investment: The average project cost, including acquisition ($800K), renovation ($3.83M–$4.79M), and soft costs ($500K), standardized at $5.61M for consistency across scenarios.


Annual Gross Revenue: Projected rental income from 50 units (650 SF average) before accounting for vacancies, based on monthly rents of $1,200 (Standard), $1,350 (Optimized), and $1,100 (Worst-Case).


Occupancy Rate: Expected percentage of leased units, reflecting market conditions and leasing efficiency (95% Standard, 96% Optimized, 85% Worst-Case).


Effective Gross Revenue: Gross revenue adjusted for vacancies, calculated as Annual Gross Revenue × Occupancy Rate.


Operating Expenses: Annual costs for maintenance, management, property taxes, and other expenses, estimated at 40% (Standard), 38% (Optimized), and 42% (Worst-Case) of Effective Gross Revenue.


Net Operating Income (NOI): Effective Gross Revenue minus Operating Expenses, representing the project’s cash flow before debt service.


Cap Rate: The capitalization rate of 7.5%, based on South Bend’s multifamily market averages, used to estimate property value.


Valuation (7.5% Cap): Calculated as NOI ÷ Cap Rate, indicating the property’s market value under each scenario.


IRR (7-Year Hold): The internal rate of return over a 7-year holding period, accounting for cash flows from rental income and exit value (sale or refinance), ranging from 5–15% depending on scenario.

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