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MRED > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

What are 4 things that developers need to be successful ?

A

Land/Knowledge/Tenants/Capital

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2
Q

Grasskamps’ 3 major groups of Development?

A

Consumers, Production, Public Infrastructure

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3
Q

What are the 5 steps of the Real Estate Development?

A

1) Planning and Initiation
2) Feasibility Phase
3) Commitment Phase
4) Construction Phase
5) Management/Operation Phase

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4
Q

What is apart of the Feasibility Phase?

A

Data Collection, Proforma/Budget, and Data Analysis

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5
Q

What is apart of the Planning and Initiation Phase?

A

Set objectives/ Assemble team

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6
Q

What makes up the Commitment Phase?

A

Finalize the development team and obtain project financing

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7
Q

What is comprised of the construction phase?

A

Completing Final Design, Selecting the Construction Team

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8
Q

What is apart of the Management and Operation Phase?

A

Operating of the facility and conducting a market program

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9
Q

What do developers do?

A

1- Obtain entitlements/approvals
2- Arrange Financing
3- Approve Leasing/Selling the Development
4-Property Management

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10
Q

What are contributors to a developers’ project going south?

A
  • Paying too much for land
  • Not knowing the market
  • Poor Appraisal
  • Poor QC/QA
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11
Q

4 parts of the RE Cycle?

A

1) Recovery
2) Expansion
3) Hypersupply
4) Recession

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12
Q

The recovery stage?

A

Made up of negative rental growth, excess space absorbed, low rental growth

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13
Q

The expansion phase?

A

Rents rise rapidly

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14
Q

Hypersupply?

A

Rent growth slows as there is oversaturation in the market?

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15
Q

Recession Phase?

A

Below-Inflation/Negative Rental Growth

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16
Q

3 Considerations of Due Diligence?

A
  • Dependent on public sector for approval and infrastructure.
  • Long investment period of no cash flow
  • Changing market conditions
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17
Q

Why would you want to meet with neighborhood organizations and why would you want to take their ideas into consideration?

A

HOA’s know the area and are educated about the issues at hand, can sometimes foresee things that others can’t

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18
Q

Regulatory Process with Development

A

A lengthy process that is only getting longer and without the citizens and council being able to put a name to the face and a lil bit of money to the cause, its less likely to get traction.

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19
Q

NIMBY

A

Not in my backyard

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20
Q

LULU

A

Locally Unwanted Land Use

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21
Q

NOPE

A

Not on Planet Earth

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22
Q

CAVE

A

Citizens against virtually anything

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23
Q

BANANA

A

Build absolutely nothing anywhere near anything

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24
Q

Importance of Traffic Studies

A

To understand the effects that the development will have on the environment, prolific in planning for growth around your development (read more about this)

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25
Q

What are some items that are involved with Land Development?

A

Site Clearing and Grading
Utility Installation
Telecom
Easement Repair, etc

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26
Q

Advantages and Disadvantages to Joint Venture

A

Adv: Frees up developers equity for other uses like planning and construction costs, avoidance of equity investment in land
Dis: Equity on return to the developer is less, becomes another payout in the waterfall distribution,

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27
Q

Multi-Phase Project

A

Allows certain financing to be released as the project progresses, pre-leasing or pre-selling is a huge aspect of this, allows for buyers or other stakeholders to prevent cherry-picking of certain more desirable lots/plats.

28
Q

How to calculate Release Provisions?

A

Original Principal Balance/Property size= $/acre

  • 1st Release Parcel size =150 acres
  • Release Price = $/acre x parcel size x release formula (given)
29
Q

What are good multi-family site characteristics?

A
  • Good synergy with mixed use
  • Demand generators near the site (shopping centers, schools, hospitals, large employers)
  • Non conflicting uses of multifamily (no clubs, loud noises, factory smells)
  • Favorable Site Characteristics
  • Site Conditions
30
Q

What are key benchmarks for RE

A

LIBOR and 10-Year Treasury Rates

31
Q

The risk to the lender compared to the risk of the investor is…..

A

Less than the risk of the equity of the investor

32
Q

Debt financing usually consists of ?

A

Construction and Permanent Financing

33
Q

Who generally are Equity Financiers?

A

Owners and Investors usually expecting a larger return

34
Q

Explain a capital stack?

A 
Equity (1st) - 20-60% of the project costs and pays returns based on performance
Mezz or Performing Debt (2nd) - Gap Financing to cover costs not supported by debt or equity 
Debt Financing (3rd)- 40-80% of the project costs, pays interest and secured by a lien
35
Q

Where are loans generated?

A

The primary financial market

36
Q

Who are the major providers of Permanent loans?

A

Long Term Loans- Life Insurance, Pension Funds, Conduits and CMBS

37
Q

Where are loans bought and sold?

A

The secondary loan market.

38
Q

What are risks of construction Loans?

A

Construction Delays, material shortages, bankruptcies of GC’s , Leasing and Sales risk if the development falls short of expectations

39
Q

What do lenders do to mitigate risk of Construction Loans?

A

Recourse vs Non Recourse Loans

-Construction Loans are disbursed on a %complete and are verified by the Architect

40
Q

Recourse v Non-Recourse Loans

A

Recourse- Lender will take it back, and require to personally guarantee the loan
Non-Recourse: Leaves the bank at risk , but have higher rates, usually never given out. The lender is only limited to the foreclosure of the property.

41
Q

How to calculate “spread” and Construction Loan Interest

A

100 basis points= 1%, 200 basis points= 2%, etc.

  • LIBOR rate=% + basis point spread = 3.08, Loan to Value
    1) Loan to value* total development amount= loan amount
    2) Loan amount* 50% outstanding balance= avg outstanding balance
    3) avg outstanding balance x point spread calc= loan interest
42
Q

Rule of Thumb for Calculating CL Interest Rates?

A

50% average outstanding balance

43
Q

What is considered the benchmark yield?

A

10-Year Treasury Securities

44
Q

Permanent Lending basis point spread?

A

Usually 300-400 basis points

45
Q

Risks on Permanent Loans?

A

The long term mortgage on the completed project. The lender is more concerned with the property quality.

46
Q

Are permanent loans recourse or non recourse?

A

Permanent loans are non recourse only because the property is stabilized or on its way.

47
Q

Deed in Lieu of foreclosure v foreclosure

A

Giving the keys back v taking them back

48
Q

Equity Funding is repaid from?

A

Cash flow after debt service

49
Q

Seller Financing

A

Buyer become owner of record for the property but the seller holds the note allowing foreclosure to regain ownership upon default.

50
Q

What are some favorable site characteristics?

A
  • Good access and visibility
  • Ease of Access (is it difficult to turn into or leave the property because of road/traffic issues)
  • Drive times to major economic centers in the area
  • Public Transportation
51
Q

How can apartments offer more latitudes with other developments?

A

Apartment offer more latitude than other development because of building pad size and flexibility with internal road and parking.

52
Q

Class A Office Space

A

Investment grade, highest rents, best location and complete amenities

53
Q

Class B Office Space

A

Good location and still viable location but from an earlier generation

54
Q

Class C Office Space

A

Substantially older with function obsolescence and less desirable location

55
Q

Neighborhood Office

A

Professional Office Parks, serves the needs of local residents.

56
Q

What is Gross Area?

A

Measured from the outside finished surface to the outer walls of a building

57
Q

Rentable Area

A

The inside finish of the outer walls and all areas within the outside walls except vertical penetrations like elevators and stairs may include bathrooms and lobbies

58
Q

Useable Area

A

Measured from the inside finish of the outer walls to the inside finish surface of the office side of the public corridor.

59
Q

What is a load factor?

A

The rentable/usable area ratio, where tenants pay rent of their usable space plus a prorated portion of the common space (i.e., bathrooms, copy room, etc)

60
Q

Gross Lease

A

Where the landlord pays for all operating expenses and assumes risk of rising costs.

61
Q

Net Lease

A

Net Lease- Tenant pays a base rent + share of utilities and building expenses

62
Q

Net- Net Lease

A

Same as net lease but the tenant also pays for maintenance

63
Q

Triple Net Lease

A

Tenant pay for all the building’s expenses + capital improvement

64
Q

Expense Stop Lease

A

Landlord pays a stated dollar amount for expenses and the tenant pays for any expenses above the amount. The stop is determine by an estimate of expenses for the 1st year.

65
Q

Tenant Leasehold Improvements

A

Typical for the developer to plan for an allowance for tenant improvements. Covers the build out of the interior space and depends on the market conditions but about $5-$6 per year of the lease.

MRED (6 decks)

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