Bailey Mixed Use Commercial Land

A 20-unit mixed-use commercial development across 14.93 acres in Bailey, Fannin County, Texas, comprising 10 large-format retail spaces — suitable for anchor tenants such as supermarkets, banks, and national commercial operators — and 10 professional office spaces, aggregating 175,000 square feet of rentable area. The balance of the site accommodates structured parking, landscaped gardens, community open space, perimeter gating, and a full drainage system. Construction is estimated at $150 per square foot across the total built area. Retail units are offered at $32 per square foot per annum and office units at $35 per square foot per annum.

Financial Breakdown:
We deem to divest our shareholding at an Equity Hurdle rate of 13.11% into 20 shares.
The project generates $6.15 of present value for every $1.00 of equity invested, after already compensating the LPs at 13.11% per year (Equity Hurdle Rate) for 7 years. For potential new co-owners buying shares, the hurdle rate is the discount rate that determines the share price they pay. If they buy a share, which represents one individual unit, at $1.00M, they are paying a price that delivers exactly 13.11% annually on their investment. At the end of the 7th year, their equity value should reach $3.57M, thus multiplying their investment by 3.57X.

The mortgage rate (7.00%) exceeds the exit cap rate (6.00%), meaning we are in negative leverage territory. The asset's unlevered yield is lower than the cost of borrowing. This means leverage mathematically dilutes the unlevered return, yet the levered IRR remains 85.89%, indicating that the project's capital appreciation and NOI growth compensate for the negative leverage effect. Secondly, the hurdle rate 611 basis points above the mortgage rate. This is a very high spread but validates the equity risk relative to the debt risk, courtesy to the profitability. Conventionally, equity should demand at least 300 to 500 basis points above the mortgage rate, which would put our hurdle at 10.50% to 12.50%. Thirdly, the unlevered IRR of 26.92% comfortably exceeds the mortgage rate of 7.00%, producing a positive debt yield spread of 19.92%. This is the number our financing bank will focus on, and it is very very healthy.