Development Financing Flashcards
How does the budget influence a project?
The budget influences design decisions and can determine the feasibility of a project.
What are the four interrelated variables in a project budget?
- Quantity of material
- Quality of construction
- Available funds
- Time to construct
Why must a budget account for inflation?
Because of the time construction takes, the budget value at present is multiplied by an inflation factor to get an expected value at the midpoint of construction.
Name some common line items included in a project budget.
- Site acquisition
- Building cost
- Site development
- Total construction cost
- Movable equipment
- Furnishings
- Professional services
- Inspection
- Escalation estimate
- Contingency
- Financing costs
- Moving expenses
The process of reviewing individual systems or materials to see if the same function can be done in a less expensive way.
What is Value Engineering?
What is a contingency in a project budget and what is a common range for it?
A percent of the total budget set aside for unanticipated expenses. Common range: 5-10%.
The long-term interest expense and immediate loan origination fee required to secure cash-flow for developing projects.
What are the financing costs in a project budget?
Why is debt service not included in the project budget?
Debt service (long-term interest) is not included because it’s an ongoing cost to the owner, similar to a maintenance cost.
How is the Project Comparison Method used to estimate costs?
It estimates the cost of a new project using past projects of similar scope and function, developing three budgets (low, medium, high). It is accurate within 15-25%.
When is the Area Method developed and how accurate is it?
Developed after preliminary design with a good idea of size, function, quality, and complexity of the project. It uses average cost per unit area and is accurate within 5-15%.
How are cost figures divided using the Area Method?
Cost figures can be divided by space and program to get more accurate results.
When is the Assembly Method used and how accurate is it?
Developed during Schematic Design (SD) using historic and assumed costs for each type of subsystem (e.g., foundations, roofing). It is the most accurate method, within 10%.
What does the developer calculate in a Pro Forma for a for-profit project?
The developer calculates the expected income against expected costs to build, estimating the selling price or rent per square foot.
How is the budget set for public projects using Pro Forma?
The budget is set without the architect’s involvement through funding or legislation.
What is a bond in project financing?
A bond is a debt security issued by a government entity to raise money for a construction project. The issuer repays the principal with interest at a later date.
What is a blanket loan used for?
A blanket loan is used to fund the purchase of a large piece of land for subdivision. Each time a parcel is sold, a portion of the mortgage is paid back and retired.
A short-term loan used to purchase property quickly, before long-term financing can be arranged is called what?
A BRIDGE LOAN
What type of financing covers the construction of the project and is in effect for the duration of construction. Which then after construction, must be converted to a long-term permanent loan or repaid.
CONSTRUCTION LOAN
What is a short-term loan for a distressed financial situation, such as a foreclosure or bankruptcy. And is based on the quick-sale value of the property and typically has high interest rates?
A HARD MONEY LOAN
What type of loan is secured by collateral in the stock of a development company rather than a property?
A MEZZANINE LOAN
