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 22.82% into 20 shares, after considering the latest US Equity Risk Premium, relevant development and liquidity risks and leverage risks.

The project generates $3.30 of present value for every $1.00 of equity invested, after already compensating the LPs at 22.82% 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 22.82% annually on their investment. At the end of the 7th year, their equity value should reach $3.30M, thus multiplying their investment by 5.80X.

The mortgage rate (7.00%) exceeds the exit cap rate (6.00%), meaning we are in negative leverage territory. The asset's unlevered yield (26.92%) is much higher than the cost of borrowing. The levered IRR remains 85.89%, indicating that the project's capital appreciation and NOI growth compensate for the negative leverage effect. The hurdle rate is 15.82% above the mortgage rate. This is a very high spread as conventionally, equity should demand at least 300 to 500 basis points above the mortgage rate, which would put our hurdle at 10.5% to 12.5%. But, we are compensating the investors more to secure a sustained earnings. Thirdly, the levered IRR exceeds the hurdle rate by a humongous amount, thus making the property one of a very charming investment opportunity.