📋 7-Pass Decision Memo

Yes — the 22.7% LP IRR holds with Georgetown-specific assumptions. Novak's confirmed numbers (6.55% YOC, 4.75% exit cap, $50M TPC) produce a clear 180 bps development spread. Atlas's independent Georgetown market model actually produces a slightly higher NOI ($3.48M vs Novak's implied $3.28M), suggesting the deal may be slightly underwritten by Novak — upside, not downside.

The math is straightforward:

• Build at 6.55% yield on cost: $50M in, generating $3.28M NOI at stabilization
• Sell at 4.75% cap rate: $3.28M ÷ 4.75% = $69M exit value
• $19M in value creation ($69M exit − $50M cost) = the development spread at work
• After debt payoff and waterfall distribution → LP IRR of 22.7%

Georgetown Rent Validation

Atlas's Georgetown rent model uses a $1,940/unit/mo blended average, positioned mid-market for Georgetown's Active Adult demand:

• 1BR/1BA (107 units, 50%): $1,750/mo — achievable for quality AA product in Georgetown
• 2BR/2BA (86 units, 40%): $2,100/mo — mid-range for Georgetown AA market ($1,800-$2,400 range)
• 2BR/2BA Deluxe (21 units, 10%): $2,400/mo — premium positioning with den/office

Georgetown is arguably the single best submarket in Texas for Active Adult development. This isn't conjecture — the evidence is overwhelming:

Sun City Georgetown — The Proof Point

• Sun City Georgetown (Del Webb) is the largest active adult community in the WORLD — ~38,000+ residents, 10,000+ homes
• Built over 20+ years with continuous absorption — demand never wavered through multiple economic cycles
• Sun City is entirely for-sale product. There is almost NO purpose-built 55+ rental product in Georgetown — that's the opportunity
• Sun City residents who want to downsize from their 2,000-3,000 SF home to a rental unit have nowhere to go in Georgetown. Radiant fills that gap.

Georgetown Growth Story

• Population growth: Georgetown has been a top-5 fastest-growing city in the US for multiple years (Census Bureau). Population ~90,000 in 2025, projected 120,000+ by 2030.
• Williamson County: One of the fastest-growing counties in the US. Major employers: Dell (Round Rock), Austin tech corridor spillover, healthcare.
• Retirement migration: Georgetown is a nationally recognized retirement destination. Low cost of living, no state income tax, excellent healthcare (Baylor Scott & White, St. David's Georgetown).
• 55+ population density: Georgetown has one of the highest concentrations of 55+ residents in the Austin metro due to Sun City's decades of for-sale development.

Competitive Landscape — Georgetown

The expired permit is the #1 execution risk on this deal. It's manageable, but it's not trivial. Here's the full picture:

Why It's Manageable

• Previously approved. The project was fully designed and permitted — the City of Georgetown already approved this project once. Re-permitting an updated version of an approved project is much easier than a new application.
• Code changes are typically incremental. Building code updates between permit cycles are usually fire safety, energy efficiency, or accessibility upgrades — not fundamental design changes. These can be incorporated without major redesign.
• Georgetown is developer-friendly. Williamson County and Georgetown generally have a pro-growth, pro-development stance. The city wants multifamily to serve its rapidly growing population.
• $800K is budgeted. The cost is known and built into the development budget. No surprise.

Why It's Still a Real Risk

• 8 months is a long time. JAK ties up $800K in pre-development capital for 8 months before knowing if the permit will be granted. During those 8 months, the $2.6M site debt continues accruing interest.
• Code changes could be larger than expected. If Georgetown adopted significant new codes (e.g., new fire codes requiring sprinkler upgrades, new stormwater management requirements, new ADA standards), the plan update could cost more than $200K and take longer.
• Political/community risk. Re-permitting reopens the project to public comment. If neighbors or community groups oppose the development, the re-permit process could face delays or conditions.
• If denied: The $800K is lost. The project is dead or requires fundamental redesign (adding years and millions). This is the worst-case scenario — unlikely but possible.

Mitigation Steps

• Before spending the $800K: meet with Georgetown planning staff for a pre-application conference. Get informal confirmation that the updated plans will be accepted.
• Engage the same architect/engineer who designed the original plans — they know the project and can update efficiently.
• Have Novak's team confirm exactly which code changes have been adopted since the original permit date.
• Build 2-month buffer into the 8-month timeline. If SDP takes 10 months instead of 8, the additional carry cost is ~$50K — manageable.

Novak has $2.6M in existing debt on the Williams Drive site. This is not unusual — developers often carry acquisition debt on sites during the entitlement phase. But it creates a structural issue that must be addressed in the JV.

How the Debt Affects the Deal

• Novak's real equity is $2.4M, not $5M. He's contributing $5M in land but has $2.6M in debt against it. His net equity contribution is $2.4M. If the JV values his contribution at $5M for ownership purposes, JAK's equity is diluted relative to Novak's actual skin in the game.
• The $2.6M gets paid off from construction loan proceeds. Most likely, the CL pays off Novak's existing debt at closing. This means $2.6M of the $30M CL goes to debt payoff — reducing available construction capital to $27.4M. Still workable, but the capital stack is tighter.
• Interest is accruing NOW. The $2.6M debt carries interest during the 8-month re-permit period. At ~6-7% interest, that's ~$15K/month or $120K over 8 months. Part of the $200K "carry costs" in the $800K use of funds covers this.

What JAK Should Negotiate

• Novak's ownership % should reflect his NET equity ($2.4M), not gross land value ($5M). Or the debt payoff should be treated as a priority distribution to Novak from the CL.
• The $2.6M debt payoff should be explicitly documented as a day-one use of CL proceeds — not buried in the budget.
• Debt service during pre-development ($120K over 8 months) should be Novak's responsibility, not JAK's. It's his debt.

$5.5M is the right amount for JAK's F&F equity in this deal. Here's why:

Is $5.5M the Right Size?

• Total equity needed: ~$20M ($50M TPC − $30M CL). Novak puts in $5M (land) + $2.6M gets repaid from CL. JAK F&F puts in $5.5M. Institutional LP fills ~$6.9M. The math works.
• Compared to Mayfair: Mayfair F&F was $3.15M with 10% promote. Radiant is $5.5M with 15% promote. More capital at risk but proportionally more promote — fair trade.
• F&F concentration risk: If JAK's F&F investors are also in Mayfair ($3.15M), total F&F exposure across both deals is $8.65M. For friends-and-family investors, this is a significant commitment. JAK needs to ensure the F&F investor base is deep enough to support both raises.

Dilution Risk from Institutional LP

• Institutional LP enters pari passu with F&F post-construction loan close. This means F&F gets no preferential treatment over institutional LP on economics — they're equal in the waterfall.
• The 8% preferred return protects F&F downside. The 15% promote participation gives upside. These terms are more favorable than typical institutional LP structures.
• Risk scenario: If the deal underperforms and returns are below the 8% pref, F&F and institutional LP absorb losses equally on a pro-rata basis. At $5.5M invested, F&F is roughly 28% of total equity ($5.5M / $19.9M). They take 28% of any losses.

Active Adult development in Georgetown is a different animal from JAK's typical deal flow. This isn't a reason to say no — it's a reason to go in with clear eyes about what's different.

What's Different About Active Adult

• Tenant demographics: 55+ renters have different needs — wider hallways, ADA-ready bathrooms, single-level or elevator access, community programming. The leasing team needs to understand retiree concerns (healthcare proximity, maintenance-free living, social connection).
• Amenity package is non-negotiable: Clubhouse, fitness, pool, pickleball, social director — these aren't nice-to-haves. They're the product. Cutting the amenity budget cuts the rent premium.
• Lease-up is slower: 55+ renters are more deliberate. They visit multiple times, ask their adult children, compare to for-sale options. Budget 18-24 months vs. 12-18 for standard MF.
• Operating model: Active Adult requires a social director/community manager — someone organizing events, classes, trips. This is an ongoing operational cost but directly drives retention and rent premium.

JAK's Skill Set Fit

• Development execution: ✅ JAK knows how to build multifamily. The physical construction is similar — the product differences are in finishes, unit design, and amenities, not structural.
• Capital markets: ✅ The JV/capital structure follows the Mayfair template. JAK's equity-raising capability translates directly.
• Georgetown local knowledge: 🟡 Does JAK have relationships with Georgetown planning staff, local GCs, or the Georgetown business community? This matters for the re-permitting process.
• Active Adult operations: 🟡 Does Andy or the property management partner have AA-specific operational experience? Hiring the right social director and leasing team is critical.
• Novak partnership: ✅ Novak has the site, the relationships, and presumably Georgetown knowledge. This is where the JV partnership fills the gap.

GO — proceed with the JV, with conditions on the re-permitting risk.

The investment thesis is sound. The Georgetown Active Adult market is the strongest possible submarket for this product type. The confirmed economics (22.7% LP IRR, 6.55% YOC, 180 bps dev spread) are strong. The JV structure is fair. The portfolio diversification benefit is real.

The ONE condition: validate the re-permitting path before committing the full $800K. Spend $10-20K on a pre-application conference with Georgetown planning staff and a code review with the original architect. If the feedback confirms manageable code updates, proceed with the full $800K plan update + re-permit.

Conditions for Full GO

Timeline