Luxury Simplified - Folly Beach Vacation Rentals: Case Study

Folly Beach VACATI ON RENTA LS CAS E STUDI ES

An Introduction to

LUXU RY SIMP L I FI ED

Vacation rentals currently produce the highest cash-on-cash return out of all the properties currently held in our Charleston Tri-County portfolio.

From our experience with real estate investments and with owning, operating, and managing vacation rental assets, we believe Folly Beach vacation rental investments will continue to produce high cash-on-cash returns and market leading appreciation.

Luxury Simplified (LS) is a vertically integrated real estate group of companies based in Charleston, South Carolina. It is focused on a range of developments in and around the Charleston marketplace. LS buys, sells, restores, develops, constructs, and manages commercial and residential real estate. Identified in 2015 as one of the “40 DYNAMIC COMPANIES IN CHARLESTON� by Charleston Magazine, LS and its partners have approximately $22M invested in a mixture of vacation rentals, long term rentals, event space, office space and land for future development. Additionally, the company manages third party properties for long and short term rentals.

Beach Vacation

RENTAL MAR K ET FOLLY BEACH, ISLE OF PALMS AND SULLIVAN’S ISLAND are the closest beaches to downtown Charleston. Wild Dunes Resort, Kiawah Island and Seabrook Island are located further from Charleston’s core and are uniquely different markets.

THE GROWTH OF TOURISM IN CHARLESTON has caused a steady increase in demand for beach vacation rentals. This growing demand with a finite supply has resulted in an upward price pressure on beach vacation rental rates and property prices.

THE VACATION RENTAL MARKET DEMAND IS GROWING, while the inventory for new vacation rentals has been restricted by local government regulation. In 2000, Sullivan’s Island enacted a moratorium that prohibits any new or substantially rehabilitated property from being a vacation rental. This means that over the last 16 years, Sullivan’s Island has added no new vacation rental inventory and won’t until, or if, the moratorium is lifted.

Folly Beach

RENTAL PORT FO L I O

THE OASIS THE VIEW THE VISTA OUR PORTFOLIO WAS PURCHASED WITHIN CLOSE PROXIMITY to the commercial core of Folly Beach and either on the beach or within walking distance thereof. These properties were in need of upgrade and good management.

OUR MANAGEMENT ARM, LUXURY SIMPLIFIED RETREATS, led the property rebranding effort, including updated high quality interiors and marketing materials that accentuated each property’s amenities with professional photos.

THESE UNITS HAVE PERFORMED WELL WITH GROSS REVENUE comparable to rentals in more expensive Charleston beach markets like Isle of Palms and Sullivan’s Island, while maintaining a 70%+ occupancy level.

EXAMPLE OF AN

Ongoing Project

In late 2016, LS purchased two commercially zoned and adjoining lots totaling a quarter acre on Folly Beach. The lots are in close proximity to the commercial corridor and are zoned to allow a yield of four residential units.

As of January 2017 we are in the process of obtaining final design review approvals for four units with four bedrooms each, totaling 16 bedrooms.

All units will have a private backyard and pool and will be specifically targeted to the vacation rental market.

VACATION RENTAL

Inventory Analysis

Comparing Folly Beach’s historical vacation rental data to Isle of Palms shows notable market trends:

FOLLY BEACH

ISLE OF PALMS

13%

33%

Percent of vacation rentals with 4+ BEDROOMS

Percent of vacation rentals with 4+ BEDROOMS

24%

68%

Percent of vacation rentals with a POOL

Percent of vacation rentals with a POOL

$472

$616

Average daily revenue from a 4+ bedroom

Average daily revenue from a 4+ bedroom

*Source: AirDNA.com

*Source: AirDNA.com

IOP CONSTRUCTION GROWTH HAS OUTPACED FOLLY BEACH, which has left Folly Beach with dated inventory. As you can see by the data, the Folly Beach vacation rental inventory is comprised of far less 4-bedroom units with a pool. Pools are among the 5 most desirable amenities for a vacation rental.

THE DATA SHOWS THE AVERAGE DAILY REVENUE FOR 4+ bedroom vacation rental properties in Isle of Palms is 30% higher than Folly Beach properties. Our case study shows this is not due to location, but largely because Folly Beach lacks both high quality 4+ bedroom vacation rentals, rentals with a pool and recently refurbished or newly built rental stock. This leaves a significant segment of the vacation rental market demand unmet in Folly Beach.

APPRECIATION

Potential

Residential properties in Folly Beach historically have the lowest median sales price of all beach communities in the Charleston market.

We believe that, while Folly Beach sales prices have tracked the market, but lagged the other two beaches, several market forces, chiefly limited supply and increasing demand, will tighten this gap in the coming years. Additionally, planned improvements to the entire Folly Road corridor and the ongoing refinement of Folly’s commercial core along Center Street will improve the overall image of Folly and should hasten property appreciation.

MARKET APPRECIATION AS EARNINGS POTENTIAL IS REALIZED Within our own portfolio, we have shown that a properly appointed and marketed Folly Beach vacation rental earns as much as an Isle of Palms or Sullivan’s Island rental, but costs around 30% less to acquire.

As the market becomes aware of the high return on Folly Beach vacation rental assets, we expect the real estate values to stabilize relative to alternative beach vacation rental investments.

INVENTORY QUALITY FORCING APPRECIATION The housing inventory in Folly Beach is relatively dated, which has resulted in lower prices achieved in comparison to other beaches with newer inventory.

As the older properties and vacant land are upgraded, the island will appeal to a more affluent buyer, which will consequently drive up values.

Our Team ROB WILSON, Director of Investments 14 years in real estate development & management Principal overseeing the procurement of new development projects, evaluating project feasibility and managing financing relationships. Prior to joining LS, Rob developed an extensive history with his family-owned residential and commercial real estate firm, Wilson Rentals &Realty. Mr. Wilson has a BBA from The College of Charleston.

CHRIS LEIGH-JONES, Owner & CEO 30 years in management & successfully building new businesses Five years at LS developing the various business entitles and property portfolio. Prior to forming Luxury Simplified, he developed Kittiwake Developments Ltd., a leading player in condition monitoring of critical plant and industry machinery where he led the firms development for 22 years. In July 2012, the company was acquired by the filtration division of Parker Hannifin. Concurrently, he was CEO at Krystallon Ltd. and developed technology for exhaust gas scrubbing on large ocean going ships and the enabling legislative framework in the European Union, USA and International Maritime Organization. The company was sold to Hamworthy PLC in 2011. He also spent two years as Chairman of the International Bunker Industry Association. Mr. Leigh-Jones relocated to Charleston and created a real estate company specializing in the historic downtown area. A British citizen, Mr. Leigh-Jones is a Chartered Marine and Mechanical Engineer and has a M.Phil. in Naval Architecture and Marine Engineering from University of Newcastle-upon-Tyne.

JAKE LIBAIRE, Development Advisor 15 years in development feasibility, management & brokerage Principal overseeing site prospecting, development feasibility, site design, and entitlements. Mr. Libaire is a licensed broker with a background in land development, urban planning and project management. Mr. Libaire has a BA in Environmental Planning from Western Washington University and a Certificate of Project Management from University of Washington.

SOPHIE LEIGH-JONES, Retreats Manager 2 years in management of vacation rental properties Sophie oversees the management of the company, client relationships and is focused on the growth and development of the portfolio. Prior to this position she started a renovation company in Charleston which helps to support the maintenance and renovation work required for managed vacation rental homes. In addition to this position, she holds her SC Real Estate license and has a Bachelor’s Degree in Business Management from Manchester University, England.

JOE LOBERT, LS Construction CEO 17 years in real estate construction & project management Principal overseeing the construction operations of the group’s property developments. Prior to joining LSG, Mr. Lobert was a Project Manager with several builders including D.R. Horton, Passailaigue Custom Homes and Ryan Homes. He has a BA from The College of Charleston.

LUXURY SIMPLIFIED 95 BROAD STREET CHARLESTON SC www.luxurysimplified.com 843.853.6055

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