class 5: stages 1, 2, 3

Question 1

the role of the developer in stages 1, 2 and 3

Answer 1

the developer takes on the role of creator and promoter

Question 2

Stage One – Idea Conception

Answer 2

the most creative and least mechanical process for the developer

Success is predicated on finding the right idea

It is not uncommon for a developer to go through many ideas in the course of day or week

Some developers are continuously brainstorming with their teams

The developer is continuously scanning her environment for ideas and opportunities

Question 3

tools Helping to guide the developer in idea conception

Answer 3

His experience

Her knowledge of the market

His familiarity with changes in the industry

Her network of consultants, lenders and investors

Question 4

Motivation Behind the Ideas

Answer 4

Land

Tenants

Knowledge

Question 5

The “Back-of-the-Envelope Pro-forma”

Answer 5

attempts to do a quick financial feasibility test without investing money on a full analysis

A rough estimate of the rent and operating expenses per square foot are used to estimate a stabilized NOI

A value estimate can be derived by using the NOI and market cap rates

Question 6

when does the “Back-of-the-Envelope Pro-forma” lead to the next stage

Answer 6

If the value generated is greater than the estimated cost of the project, the idea may survive to the next stage

If the value is less than costs, the project may be re-imagined or abandoned

Is there money to be made in a rough estimate type of way

Question 7

Risk Control Measures in Stage One

Answer 7

Know your capabilities

Know your team’s abilities, strengths and weaknesses

Keep current
–> Zoning
–> Rent levels

Be willing to say “PASS”

Question 8

Stage Two – Idea Refinement

The primary objectives and tasks in the stage

Answer 8

Control the site

Identify the critical assumptions, modify them as appropriate, and prepare them for validation through the due diligence process

Make an initial determination of the project’s feasibility

Question 9

initial determination of the project’s feasibility

Answer 9

This requires the involvement of the development team

Use of relationships and connections

Try to get as much information without spending any money

Question 10

true or false

Answer 10

The developer should feel reasonably confident at the end of stage two about the project’s feasibility.

Question 11

For ideas that are not associated with a specific site, what is the first task of stage two

Answer 11

creating a plan for land acquisition

Question 12

how to create a plan for land acquisition

Answer 12

Analyzing areas/neighborhoods in the market

Analyzing competition

Discussing with elected and appointed official & city planners

Determining initial design requirements for the site

Negotiating site and structuring a contract to secure the site

Refine financial feasibility.

Question 13

Selecting the Site –Sources of Information

Answer 13

Urban growth models

GISs (Geographic Information Systems)

Question 14

Urban growth models

Answer 14

Provide a theoretical framework for understanding a market’s current pattern of land use and potential directions of change.

Question 15

the two types of GISs (Geographic Information Systems)

Answer 15

Spatial interaction models

Spatial diffusion models

Question 16

Spatial interaction models

Answer 16

traffic flows

store patronage

store revenue

Question 17

Spatial diffusion models

Answer 17

predict population movements

growth/decay of neighborhoods

development of new neighborhoods)

Question 18

Selecting the Site – Characteristics

Answer 18

Usable Area

Floor/area ratio: square feet of a parcel that can be constructed on

Situs: interaction of the project with surrounding sites & the impacts of those surrounding uses on the subject property

Geology

Soil condition (can lead to excavation & foundation work if not looked into)

Hazardous Material

Cultural considerations

Infrastructure

Question 19

Situs

Answer 19

interaction of the project with surrounding sites & the impacts of those surrounding uses on the subject property

Question 20

a cheat code for a developper after finding out about the site’s characteristics

Answer 20

Ideally the developer sets up contracts that allow her to back out of land purchase if significant environment contamination or geological problems are discovered

Question 21

Controlling the Site

Answer 21

To reduce the amount of money at risk during this period, the developer would rather not purchase the land but wants to control it

A letter of intent (LOI) is often signed and is converted to purchase agreement following satisfactory due diligence

An option is often used to control the site without an outright initial purchase

Question 22

A letter of intent (LOI)

Answer 22

The price to be paid at closing

Deposits paid to the seller as an inducement to take the property off the market

Conditions of closing

Responsibility for brokerage commissions

Responsibilities of the buyer and seller

Due diligence rights, including entry, testing, interviews, and other acts

Right of assignment.

Question 23

The Initial Feasibility

Answer 23

the developer tests the concepts in the context of specific sites.

Ideas and initial design concepts are refined as more information becomes available

Question 24

assumptions made during The Initial Feasibility

Answer 24

physical character of the site

entitlement environment

competitive environment

lending environment

Question 25

participants in the second stage

Answer 25

contractors

end users

property managers

designer and architects

Lenders

Investors

The Public

Question 26

contractors

Answer 26

Contractors are consulted to ensure that the concept can be built on the proposed site or if adjustments need to be made

Question 27

contractors and business cycles

Answer 27

Business cycle affects the quality of available trades’ people

As business cycles peaks, construction costs may escalate and quality may suffer, as less experienced people only are the ones available.

Question 28

End Users

Answer 28

developers begin discussions with a range of possible tenants to determine users’ specific requirements and to refine the general idea of market demand established during stage one

Question 29

Property Managers and their use

Answer 29

Valuable in helping developers avoid costly design mistakes and in planning design features that will make the building easier to manage and/or reduce operating costs

Input from property managers is particularly important when a proposed project will involve extensive, ongoing services

Question 30

Designers and architects

Answer 30

Initial discussions on the feasibility of the concepts and designs may begin at this stage

More important if this is a new concept

These discussions may lead to changes in the initial design

Good at tweaking designs to see If it would fit the space if needed

Question 31

Lenders

Answer 31

Determining if the project can be financed is imperative

Possible terms and conditions required by the lender are assessed

Informal discussions and negotiations are started

Question 32

Investors

Answer 32

At this point, you probably won’t be talking to investors

Early equity investors typically want a greater portion of the project’s cash flow because they assume more of the development risk.

Early involvement of equity investors reduces the risk to permanent & construction lenders, thereby lowering the cost of debt financing

Many projects endure a period in which none of the money will be returned to investors if the project doesn’t proceed

Question 33

The Public

Answer 33

Government

neighborhood associations

advocacy groups

Can bring the later in case the project kinda bugs

Don’t want the public to think you lied
A favorable impression of the project by the public can lead to an easier entitlement process and a greater market acceptance

Question 34

Analysis of financial feasibility gets refined at which stage

Answer 34

stage two